Economics – Day #2

1. Economics – Day #2 Business Management

2. Economic Indicators Objective Essential Questions What are economic indicators? Explain the purpose of measuring economic indicators. Identify examples of leading and lagging economic indicators. We will identify basic micro- and macro-economic concepts in order to understand economic indicators.

3. How do you measure up? Student performance is measured by: • GPA • SAT • Class Rank Baseball performance is measured by: • Batting Average • Strikeouts

4. Economic Indicators • Economic indicators are figures used to measure a country’s economic performance. • We measure things like: • how much (goods & services) a country produces • whether a country’s economy is growing • how a country’s economy compares to others

5. Examples of Economic Indicators

6. Retail Sales Index • Measures goods sold within the retail industry • Does not include money spent on services • Shows if consumers are spending or saving

7. Gross Domestic Product • GDP is the total market value of all goods & services produced within in a country in a given year. • Changes show whether the economy is growing or slowing

8. How does the U.S. compare?

9. GDP Fun Facts • Released the last day of each quarter • Recently the U.S. economy has grown around 2.5 – 3 % per year.

11. Inflation Rate • Inflation is a general increase in the price of goods & services. • Indicates that the cost of living is getting more expensive! • Inflation Calculator

12. Inflation Fun Facts • Measured by the Consumer Price Index (CPI) which samples prices at different stores • Occurs when supply is less than demand • Federal Reserve decides interest rates in order to adjust for inflation.

13. A Look at Inflation Across U.S. History Worksheet Activity

14. Unemployment Rate • Measures number of people who are willing & able to work but cannot find a job • Shows whether economy is picking up or slowing down

16. Closing Task #1 • What is the purpose of measuring economic indicators? • Explain the difference between leading indicators and lagging indicators – include an example of each. • What does GDP tell us about the economy? • What does the inflation rate tell us? • What does unemployment tell us?

17. The Business Cycle Objective Essential Questions What is the business cycle? What are the stages of the business cycle? How is each stage of the business cycle characterized? We will identify basic micro- and macro-economic concepts in order to understand the business cycle.

18. What is the Business Cycle? • Economies naturally go through ups and downs. • The business cycle is the rise and fall of economic activity over time. • In the United States, some decades have been characterized by a drop in economic activity & a rise in unemployment. • 1930s, 1950s, 1970s, 2000s • Slumps followed by new waves of increased productivity and increased GDP

19. Stages of the Business Cycle

20. Prosperity • Also known as the “peak” • Higher wages, more jobs available, higher demand for goods & services • Unemployment is low, GDP is high • People are spending!

21. Recession • Economic activity slows down – less production of goods, downturns in industry • GDP decreasing, unemployment increasing • People are starting to save!

22. Depression / Trough • Deep recession that lasts for years and affects the entire economy • Unemployment is high, GDP is low • Government starts trying to “stimulate” the economy • People are saving!

23. Recovery / Expansion • Rise in business activity after a recession or depression • Innovation occurs – businesses start bringing out new products & services • Unemployment decreasing, GDP increasing

24. Entrepreneurs who rose from the Ashes Many of today’s Fortune 500 companies came from hard times…

25. General Motors • William C. Durant High school drop-out working as a Buick manager in Detroit Acquired Oldsmobile, Cadillac & Pontiac Launched Chevrolet (later joined GM) • The Panic of 1907

26. Playboy Enterprises • Hugh Hefner Former employee of Esquire who quit when his boss refused to give him a $5 raise Designed his own magazine with the help of his friends • Recession of 1953

27. Sirius Satellite Radio • Robert Briskman Former NASA engineer COO at Geostart (satellite messaging company) Figured out how to broadcast digital radio signals via satellite Merged with XM Satellite Radio in 2008 to provide commercial-free radio 24 hours/day • Early 1990s Recession

28. Closing Task #2 • What is the business cycle? • What are the stages of the business cycle? • Identify which stage of the business cycle is characterized by the following indicators. • low GDP, high unemployment • declining GDP, rising unemployment • rising GDP, declining unemployment • high GDP, low unemployment

29. Economic Cycles Objective Essential Questions Which industries are particularly affected by shifts in economic cycles? Describe durable goods and provide examples. Explain the difference between inelastic and elastic demand. We will identify basic micro- and macro-economic concepts in order to understand the effect of economic cycles.

30. Shifts in Economic Cycles While the economy as a whole is negatively impacted by economic shifts, certain companies & industries are particularly sensitive to changes overall.

31. Durable Goods • Consumers tend to cut back on the purchase of certain products if the ones they have already can last through the recession. • Manufacturers of durable goods like cars, appliances, and electronics are among the most impacted by economic shifts.

32. Example: Transportation • GM, Ford, Chrysler, and other car companies Consumers put off buying new cars or they purchase less expensive models. • United Airlines & British Airways Airlines suffer in recessions because people travel less overall. • FedEx & UPS Volume in mailed packages declines during recessions.

33. Example: Manufacturing • Whirlpool & Sears Home appliance manufacturers are subject to decline in demand during recessions. Demand for appliances is tightly linked to new home sales, which slows during a recession.

34. Example: Construction • Home Depot & Lowes Performance of home improvement retailers is also correlated to the housing market.

35. Other Industries… • Investment Services • Hotels • Luxury Commodities • Advertising Firms

36. Inelastic Demand • Certain goods are relatively protected from the impact of shifts in economic cycles. • Goods that have relatively inelastic demand with respect to income are generally shielded. • You still have to eat, drive to work, etc.

37. Examples of Inelastic Demand • Food Manufacturers & Retailers • Addictive Substances • Medicine & Medical Equipment • Utilities

38. Closing Task #3 • Describe durable goods. • Provide an example of an industry that is significantly impacted by economic shifts. • Describe inelastic demand. • Provide an example of an industry that is relatively unaffected by economic shifts.