Objective 1.02Understand economic conditions

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Measuring economic activities

Classifying economic conditions

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Topics

GDP: a country’s total dollar value of all newly produced goods and services inside our boarders

Major categories included in GDP◦Consumer spending◦Business spending◦Government spending◦Exports & imports:

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Gross Domestic Product (GDP)

GDP per capita = output per person

= GDP _

Total Population of the Country

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GDP per capita

Consumer 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)

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Investment (for the future)

The money used for capital projects (land, buildings, equipment, research) comes from three main sources:• Personal savings:◦Banks 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??

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Investment (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.

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Investment (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.

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Borrowing Activities …

How does the government make money?What happens if they spend more than they make?

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.

Classification of Economic Conditions

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Unemployment rate: people that are not working, but are willing to work, are looking for work, but can’t find a job.

People that have given up DO NOT COUNT

Productivity How much output can one unit of input create? (Measured in hours)

If Productivity increases, do we need to hire more or less people?

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Labor Activities

◦U.S. Dec 2010 rate=9.4% represents over 14,500,000 people

◦North Carolina’s Dec 2010 rate=9.8% North Carolina’s July 2010 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%

◦What is considered NORMAL Unemployment?

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Labor Activities

PROSPERITY

RECESSION

DEPRESSION

RECOVERY

Situation PROSPERITY RECESSION DEPRESSION RECOVERY

Employment

GDP

Actions of businesses

Consumer Price Index (CPI) Inflation – What is it? Causes of inflation

◦ Wages, Increase in Money Supply

Deflation – What is it? Causes of deflation

Why is Inflation Good and Deflation Bad?

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Consumer Prices