Essential Standard 1.00

1. Essential Standard 1.00 Understand the role of business in the global economy.

2. Objective 1.02 Understand economic conditions

3. Topics • Measuring economic activities • Classifying economic conditions

4. Measuring Economic Activities

5. Measuring Economic ActivitiesGross Domestic Product (GDP) • GDP: a country’s total dollar value of all final goods and services produced in one year. • Most commonly used measure to determine a country’s overall economic growth Growth in GDP • Major categories included in GDP • Consumer spending: for food, clothing, housing, other consumer items • Business spending: for buildings, equipment, inventory • Government spending: for employee pay, and to purchase supplies and other goods and services • Exports & imports: • Exports out of the country (minus) Imports into the country

6. GDP per capita GDP per capita = output per person =_________GDP__________ Total Population of the Country

7. Measuring Economic ActivitiesLabor Activities • Unemployment rate: includes the people of the labor force that are not working, but are willing to work, are looking for work, but can’t find a job. • Productivity means …The production output in relation to a unit of input (by a worker.) Gains in Productivity Result in Record Output • What can contribute to employees increasing their production? • Equipment, technology, training, management

8. Activity 1 – POBF 1.02 • Complete the Labor Activity Handout

9. Measuring Economic ActivitiesLabor Activities • U.S. 12/10 rate=9.4% • represents over 14,500,000 people • North Carolina’s 12/10 rate=9.8% • North Carolina’s 07/10 rate=9.8% • U.S. lowest: North Dakota 3.8% • Lowest area unemployment: Lincoln, Nebraska 3.5% • U.S. highest: Nevada 14.5% • Highest area unemployment: El Centro, CA 28.3% • Raleigh/Cary rate=7.8% • 07/10=8.4% • Current highest NC is Rocky Mt.=12.6%

10. Measuring Economic ActivitiesConsumer Spending Measurements of consumer spending: • Personal Income: includes the total wages and salaries plus investment income and government payments to individuals. • Retail Sales: sales of durable and non durable goods and services purchased by consumers (autos, building materials, furniture, gas, $ spent at restaurants, etc)

11. Measuring Economic ActivitiesInvestment (for the future) • The money used for capital projects (land, buildings, equipment, research) comes from three main sources: • Personal savings: • People and businesses deposit money in bank savings accounts. Banks then lend this money to businesses which use the borrowed money to buy equipment or products for their businesses. • Savers, in turn, earn interest on money used by companies and other individuals. • What happens if people don’t save??

12. Measuring Economic ActivitiesInvestment (for the future) • The money used for capital projects (land, buildings, equipment, research) comes from three main sources: • The stock market: • Stock represents ownership in a company. If a company wants to expand, it can sell stock to raise money. • Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock.

13. Measuring Economic ActivitiesInvestment (for the future) • The money used for capital projects (land, buildings, equipment, research) comes from three main sources: • The bond market: • Bonds represent debt for a company. If a company wants to expand, it can sell bonds to raise money. • Bondholders purchase the bonds, and earn interest on the money they have loaned to businesses and the government. • Eventually, the company pays the bondholders back their money, with interest.

14. Borrowing Activities … By Governments: If governments want to spend more than they brings in through taxes and fees, they may have to borrow money. This overspending is known as a budget deficit. U.S. National Debt Companies may borrow money to start up or expand. Using borrowed funds efficiently can result in an increase in sales and profits.

15. Measuring Economic Activities GDP GDP Per capita Labor Activities Consumer Spending Investment Activities Borrowing Activities

16. Classification of Economic Conditions

17. PROSPERITY RECOVERY RECESSION DEPRESSION

18. Activity 2 – 1.02 • Business cycle poster

19. Over a three-year period, how has the income been impacted by the cost of a gallon of milk?

20. Consumer Prices • Inflation • Causes of inflation • Consumer Price Index (CPI) • Deflation • Causes of deflation

21. Interest Rates Types: Prime rate Discount rate T-bill rate Treasury bond rate Mortgage rate Corporate bond rate Certificate of deposit rate What is the primary purpose of each?

22. Interest Rates Interest rates: the cost of borrowing money • Prime rate: the rate banks charge their best customers to borrow money (mostly large corporations) • Discount rate: the interest rate banks pay to borrow money from the Federal Reserve (govt) • T-bill rate: the yield (savings rate) earned by investors on short-term (13 week) debt (bonds) issued by the federal government

23. Interest Rates • Treasury Bond rate: the yield (savings rate) earned by investors on long term (20 year) debt )bonds) issued by the federal gov’t • Mortgage rate: Interest paid to the lender to borrow money for a home loan • Corporate bond rate: the yield (savings rate) earned by investors on debt issued by large corporations • Certificate of Deposit (CD) rate: the yield on savings earned by investors for depositing their money with banks for a specific time period

24. How do interest rates impact businesses? • Interest rates for borrowing have a strong influence on businesses. • Higher interest rates for loans and debt mean high expenses (costs) for businesses. Many times, businesses pass these increased costs on to consumers in the form of higher prices for goods and services.

25. Activity 3 – 1.03 • Complete Economic activities and conditions crossword puzzle

26. Activity 4: Video • How Economic Freedom Leads to Prosperity? http://www.stosselintheclassroom.org/index.php?p=video_economic_freedom.html&l=3