2-1 Measuring Economic Activity 2-2 Economic Conditions Change

1. C H A P T E R 2 Economic Activity 2-1 Measuring Economic Activity 2-2 Economic Conditions Change 2-3 Other Measures of Business Activity

2. 2-1Measuring Economic Activity Goal 1 Define gross domestic product. Goal 2 Describe economic measures of labor. Goal 3 Identify economic indicators for consumer spending.

3. KEY TERMS • Gross Domestic Product (GDP) • GDP per capita • unemployment rate • productivity • personal income • retail sales

4. GROSS DOMESTIC PRODUCT (GDP) • Components of GDP • Consumer spending • Business spending • Government spending • Exported goods – imported goods • Exclusions • Things you do for yourself • Intermediate goods

5. GDP PER CAPITA • Comparing GDP • More accurate to compare GDP per capita • Divide GDP by total population • Who has the best? • If population grows, but GDP doesn’t then economy is shrinking

6. COMPARISON OF GDP IN SELECTED COUNTRIES

7. COMPARING GROSS DOMESTIC PRODUCT

8. Checkpoint  • What types of economic activities are not included in GDP? • GDP only applies to reported final goods and services. • Money earned for goods or services that are not reported would not be included. • Goods and services used in the manufacture of other products are only counted once—in the final product.

9. LABOR ACTIVITIES • Employment • Labor force = 16+ people working or actively seeking jobs • Unemployment increases when demand for current goods and services decreases

10. LABOR ACTIVITIES • Productivity – output in relation to input • Increase with fewer workers and same or increased output • Can decrease if wages grow, but output doesn’t • Improved equipment/technology • More skills/training • Better management techniques (motivation)

11. Checkpoint  • How can productivity be increased? • Productivity can be increased by improvements in capital resources (equipment and technology), worker training, and management techniques.

12. CONSUMER SPENDING • Personal income • Salaries/wages • Investment income • Government payments • Retail sales • Dictates general health of economy • What’s included?

13. Checkpoint  • What are the main sources of personal income? • Sources of personal income include wages, salaries, investment income, and government payments.

14. 2-2 Economic Conditions Change Goal 1 Describe the four phases of the business cycle. Goal 2 Explain causes of inflation and deflation. Goal 3 Identify the importance of interest rates.

15. KEY TERMS • business cycle • prosperity • recession • depression • recovery • inflation • price index • deflation

16. THE BUSINESS CYCLE • What factors are evaluated? • GDP, demand for products/services, employment rate, wages • Prosperity – highest point • Recession – economy shrinking • Depression – prolonged recession • Recovery – jobs increase, demand increases, GDP rises

17. Checkpoint  • What are the four phases of the business cycle? • Prosperity • Recession • Depression • Recovery

18. CONSUMER PRICES • Inflation • Bad for fixed incomes • Causes of inflation • Supply < demand for products • Wages increase slower than product prices

19. CONSUMER PRICES • Measuring inflation • Some inflation is good • If businesses make more $, they can hire more people • Consumer Price Index (CPI) – measures inflation (based on selected products) • Deflation • Recession/depressions • Can result from improved technoogy

20. Checkpoint  • What are the main causes of inflation? • Inflation is an increase in the general level of prices that occurs when the demand for goods and services is greater than supply.

21. INTEREST RATES • Types of interest rates • Prime rate, discount rate, T-bill rate, treasury bond rate, mortgage rate, corporate bond rate, certificate of deposit rate • Changing interest rates • High amount saved  lower demand for $  Lower interest rates • Higher spending  more demand  higher interest rates

22. Checkpoint  • How do interest rates affect business activities in our economy? • Interest rates can encourage or discourage borrowing and spending. • Lower interest rates allow consumers greater spending power, which increases demand, productivity, and employment. • Businesses often pass on the cost of higher interest rates to consumers.

23. 2-3 Other Measures of Business Activity Goal 1 Discuss investment activities that promote economic growth. Goal 2 Explain borrowing activities by government, business, and consumers. Goal 3 Describe future concerns of economic growth.

24. KEY TERMS • capital project • stock • bond • budget surplus • budget deficit • national debt

25. INVESTMENT ACTIVITIES • These activities provide funds for capital projects • Personal savings • Low risk, low return (usually <1%) • The stock market – ownership in corporations • Higher potential risk for higher potential return • Prices determined by supply and demand • The bond market – loans to corps./govt.

26. Checkpoint  • Name some examples of capital projects. • Capital projects include the purchase of any item a business will use over an extended period of time such as land, buildings, and equipment.

27. BORROWING • Government debt – necessary to fund projects • Surplus vs. deficit • Surplus helps chip away at national debt • Business debt • Loans, bonds, mortgages • Consumer debt • Overly convenient or necessary evil?

28. Checkpoint  • What is the cause of a budget deficit? • A budget deficit occurs when a government or organization spends more than it takes in.

29. FUTURE ECONOMIC CHALLENGES • Emerging markets • What is an emerging market right now? • Weak economies • Stronger ones usually help • Consumer preferences and behavior • Know your target market

30. Checkpoint  • What economic challenges do countries face in the future? • Future economic concerns for any country include the ability to increase its output and provide a means for its citizens to meet the basic needs of food and shelter, adequate health care, education, transportation, employment, and safety.