1.02 ~ economic activities and conditions measuring economic activity
TRANSCRIPT
1 . 0 2 ~ E C O N O M I C A C T I V I T I E S A N D C O N D I T I O N S
MEASURING ECONOMIC ACTIVITY
GROSS DOMESTIC PRODUCT (GDP)
• The total dollar value of all final goods and services produced in a country during one year.• US has very high GDP (over $15 trillion)
Chapter 2 Slide 2
COMPONENTS OF GDP
Consumer spending for food, clothing, housing, and other
spending
Business spending for buildings,
equipment, and inventory items
Government spending to pay
employees and to buy supplies and other goods and services
The EXPORTS of a country LESS the IMPORTS into a
country.
Chapter 2 Slide 3
NOT INCLUDED IN GDP
Value of the work you do for yourself
Intermediate goods used in
manufacturing, such as steel and fabrics.
Chapter 2 Slide 4
GDP PER CAPITA
GDP per capita
output per person = GDP ÷ Total PopulationIncrease in GDP per capita
means economy is
growing
Decrease in GDP per capita
may mean economy is
having trouble
5
LABOR ACTIVITIES
The workers of a country contribute to an
economy in several ways:
Create needed goods and services
Wages received are spent to create demand
for various itemsChapter 2 Slide 6
LABOR ACTIVITIES ~ EMPLOYMENT
Labor force
consists of all people above age 16 who are actively
working or seeking employment.
Students, retired people, and others who cannot or do
not wish to work are not part of the labor force.
Unemployment rate
Portion of people in the labor force who are not
working (must be looking for work and able and willing to
work)
Main cause: reduced demand for goods and
services
As of July 2011, US Unemployment Rate = 9.1% (Bureau of Labor Statistics)• http://www.bls.gov/news.releas
e/empsit.nr0.htm
Chapter 2 Slide 7
LABOR ACTIVITIES ~ EMPLOYMENT
• Unemployment• Temporary• Just quit job or just graduated from school
• Seasonal• Harvest crops or work retail during the
holidays• Industry Changes• New technology• Mergers or restructuring and “downsizing”
• US ~ 4.5% (typical)
LABOR ACTIVITIES ~ PRODUCTIVITY
A vital source of economic
growth is an increase in output per
worker.
Productivity
the production output in relation to a unit of input.
Can be increased
by:
Improvements in capital resources (equipment and
technology)
Worker training
Management techniques
Chapter 2 Slide 9
CONSUMER SPENDING
The money you earn and spend is one of the most important factors for economic growth.
Personal income• The salaries and wages as well
as investment income and government payments to individuals.
Chapter 2 Slide 10
CONSUMER SPENDING
Retail sales
The sales of durable and nondurable goods bought
by consumers.
Main items measured include:• Automobiles, Building Materials,
Furniture, Gasoline, Clothing• Purchases from Restaurants,
Department Stores, Food Stores, Drug Stores
Chapter 2 Slide 11
ECONOMIC CONDITIONS CHANGE
Goals• Describe the four phases of the business cycle.• Explain causes of inflation and deflation.• Identify the importance of interest rates.
Chapter 2 Slide 12
THE BUSINESS CYCLE
• Our economy has its ups and downs; seems to run in cycles• Good times Bad times Good
times• This movement of the economy from one
condition to another and then back again is called a Business Cycle.• Four phases
Chapter 2 Slide 13
Prosperity
• Employment rate and demand for products and services are high.
• Businesses continue making profits.
Recession
• Unemployment rate is increasing and demand for products and services are lowering.
• Businesses must strategize to stimulate demand for products & services.
Depression
• Unemployment rate is high and demand for products and services is lowering.
• Businesses try to maintain profits or break even to avoid going out of business.
Recovery
• Unemployment rate is lowering and demand for products and services is increasing.
• Business may increase human capital. 14
THE BUSINESS CYCLE
• Prosperity• Peak of economic activity• Low unemployment and inflation• Production is high• Higher wages = greater demand for goods and services• New business open (Internet companies)• 1990’s
THE BUSINESS CYCLE
• Recession• Economic activity slows down• Spending and demand for goods decreases• Unemployment and inflation rise• Productivity and GDP decline• Ripple Effect• Recession in one industry affects related industries
• 1970s (oil shortage)
THE BUSINESS CYCLE
• Depression• Deep recession affecting the entire economy and lasting
several years• High unemployment and inflation• Low productivity• Shortages of goods• Great Depression 1929-1933
THE BUSINESS CYCLE
• Recovery• Rise in business activity after recession or depression• Production increases• Unemployment declines• Demand for goods and services increases• GDP rises• New businesses open• Innovation and expansion
CONSUMER PRICES
Chapter 2 Slide 19
Inflation
An increase in the general
level of prices.
Demand for goods and services is
greater than supply
causing prices to rise faster than wages
Buying power of the dollar decreases
It now takes more money to buy the
same amount of goods and
services
Most harmful to people
living on fixed incomes –
retirees and disabled persons
CONSUMER PRICES
• Inflation• Causes:• Economy too productive• Printing too much money
• Avoided by slow but steady economic growth; controlling production and maintaining unemployment levels
• Consumer Price Index (CPI)• Tracks the prices of a specified basket of consumer goods
and services• Provides measure of inflation• Also considered a cost of living index
Deflation
A decrease
in the general level of prices
Usually occurs during
periods of recession
and depressio
n
Prices of products are lower, but people have less money to buy them
Significant deflation occurred
in the U.S. during the
Great Depression of the 1930s, when prices
declined about 25%.
Chapter 2 Slide 21
OTHER MEASURES OF BUSINESS ACTIVITY
Chapter 2 Slide 1
Goals• Discuss investment activities that promote
economic growth.• Explain borrowing activities by government,
business, and consumers.• Describe future concerns of economic growth.
INVESTMENT ACTIVITIES
Chapter 2 Slide 23
•Your time in school is an investment in your future•Companies buying buildings and equipment•Capital spending – money spent by a business for an item that will be used over a long period
Investing for the
future can happen in
several ways.
INVESTMENT ACTIVITIES, CONT’D.
Chapter 2 Slide 24
Capital projects involve spending by businesses for
items such as land, buildings, equipment, and new products.
PERSONAL SAVINGS
Chapter 2 Slide 25
THE STOCK MARKET
Chapter 2 Slide 26
Many people invest by
becoming part owners of a corporation.
Investors are issued stock to represent this
ownership.
Supply and demand are major influencers in stock prices• If a company has
higher earnings, more people will want to buy its stock, which causes the value to increase
THE BOND MARKET
Chapter 2 Slide 27
Another investment activity involves the sale of bonds.
• In return, you are paid interest for the use of your money.
A bond represents debt for an organization.
When you purchase a corporate or government bond, you have become a creditor.
GOVERNMENT DEBT
Chapter 2 Slide 28
Credit is often referred to as “Buy now, pay later”
GOVERNMENT DEBT, CONT’D.
Chapter 2 Slide 29
A government may spend less than it takes in – a budget surplus is the
result.
May cause a reduction in taxes
or increased spending
30
Interest Rates
•Prime rate is usually made available to banks’ best customers.
•Discount rate is offered by the federal reserve to financial institutions for loans.
•T-bill rate is the yield for short-term (13 weeks) government debt.
•Treasury bond rate is the yield for long-term government debt.
31
Interest Rates
•Mortgage rate is the amount borrowers pay for home loans.
•Corporate bond rate is the cost of loans for large US corporations.
•Certificate of deposit (CD) rate paid for deposits for a period of time ( 6, 12, or 18 months).
DECISION-MAKING
Chapter 2 Slide 32
Economic decision-making plays a major
role in how well companies (both
large and small) will manage their debt.
Borrowing can be helpful when
funds are used to expand sales and
profits.
Poor decision-making can lead to debt problems
and business failure.
>> C H E C K P O I N T
Chapter 2 Slide 33
What is the cause of a budget deficit?
FUTURE ECONOMIC CHALLENGES
Chapter 2 Slide 34
Limited access to health care Traffic and crime
>> C H E C K P O I N T
Chapter 2 Slide 35
What are future economic concerns for a country’s economy?