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

CHAPTER 2MEASURING ECONOMIC ACTIVITY

GROSS DOMESTIC PRODUCT (GDP)

• The total dollar value of all final goods and services produced in a country during one year.• http://www.bbc.co.uk/news/business-13200758

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 CAPITAGDP per capita

output per person = GDP ÷ Total Population

Increase 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 ~ 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 8

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 9

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 10

>> C H E C K P O I N T

1. Unemployment/GDP mapping activity.2. You are to label the blank US map with the

following information:1. Unemployment rate per state2. GPD per capita per state

3. Answer the following question based on your map:

1. What correlation can you see between the unemployment rates and the GDP per capita?

Chapter 2 Slide 11

LESSON 2-2

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

CONSUMER PRICES

Chapter 2 Slide 15

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

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 16

LESSON 2-3

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 18

•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 19

Capital projects involve spending by businesses for

items such as land, buildings, equipment, and new products.

PERSONAL SAVINGS

Chapter 2 Slide 20

THE STOCK MARKET

Chapter 2 Slide 21

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 22

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 23

Credit is often referred to as “Buy now, pay later”

GOVERNMENT DEBT, CONT’D.

Chapter 2 Slide 24

A government may spend less than it takes in – a budget surplus is the

result.

May cause a reduction in taxes

or increased spending

DECISION-MAKING

Chapter 2 Slide 25

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 26

What is the cause of a budget deficit?

FUTURE ECONOMIC CHALLENGES

Chapter 2 Slide 27

Limited access to health care Traffic and crime

>> C H E C K P O I N T

Chapter 2 Slide 28

What are future economic concerns for a country’s economy?