Economic Activity

ChapterChapterChapterChapter 22pppp

Economic Activity

22--11 Measuring Economic Activityg y22--22 Economic Conditions Change22 33 Other Measures of Business22--33 Other Measures of Business

Activity

Introduction to Business

LESSON 2LESSON 2--11LESSON 2LESSON 2 11

Measuring Economic ActivityGoals

Define gross domestic productDefine gross domestic product.Describe economic measures of labor.Id tif i i di t fIdentify economic indicators for consumer spending.

Introduction to BusinessChapter 2Slide 2

Key Terms

Gross Domestic Product (GDP)GDP per capitaGDP per capitaunemployment rate

d ti itproductivitypersonal incomeretail sales


MEASURING ECONOMIC

E i G th

ACTIVITYEconomic Growth:

Steady increase in the production of G & SGROSS DOMESTIC PRODUCT (GDP):

Total $ value of all G & S produced in a country in one yearIs the most widely used measure of economic growth


Components of GDP – 4 categories of ti itecon. activity:

1. Consumer spending2. Business spending3. Gvt. Spending4. Exports minus imports (of a country)

NOT INCLUDED:Value of work you do for self“Intermediate Goods” – supplies in

f t imanufacturingWhen GDP increases = econ is healthy


GDP per capita:GDP divided by the total pop.y p p

Also called “output per person”Increase = econ is growing


Comparison of GDP inComparison of GDP in Selected Countries


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

What types of economic activities are not included in GDP?


LABOR ACTIVITIESLABOR ACTIVITIESLabor Force:

all people over 16 who are working or lookingall people over 16 who are working or looking for work

NOT PART – students retired cannot or do notNOT PART students, retired, cannot or do not work

Unemployment Rate:p yPeople in labor force who are not workingUnemployed if…looking, willing, but cannot findCause – reduced demand for G & S


ProductivityA t k d i it fAmount a worker can produce in a unit of timeOutput in relation to a unit of inputOutput in relation to a unit of input

What can increase productivity?Better technology, training, capital resources, mgnt



What are ways to increase productivity?


**Activity**Activity2.1 GDP & Unemployment

Search the net to find the following information for 3 countries:

GDP:Population:Population: GDP per capita:

Search for & list unemployment ratesSearch for & list unemployment rates for 3 different states for 2007.


CONSUMER SPENDINGCONSUMER SPENDING(the $ we earn & spend is a very important factor for econ growth)

Personal incomePersonal incomeSalaries, wages, investment inc, & govt paymentspayments

Retail salesSales of durable & nondurable GSales of durable & nondurable G purchased by consumersThings we use dailyg yGood measure for govt to guage econ growth



What are the main sources of personal income?


LESSON 2LESSON 2--22LESSON 2LESSON 2 22

Economic Conditions ChangeGoals

Describe the four phases of theDescribe the four phases of the business cycle.Explain causes of inflation andExplain causes of inflation and deflation.Id tif th i t f i t t tIdentify the importance of interest rates.


Key Terms

business cycleprosperity

recoveryinflationprosperity

recessiond i

inflationprice indexd fl tidepression deflation


THE BUSINESS CYCLE

•The movement of the econ from good to bad & back

•They are recurring ups & downs of the GDP

1. Prosperity:Peak of the BC; most people who want to work

•Have 4 phases

Peak of the BC; most people who want to work are, many G & S are produced & sold, wages are good, & GDP rate is growing.

2 Recession:2. Recession:Econ slows, demand decreases, production falls, unem raises, GDP growth slows for 2 or more quartersquartersDoes not always signal major troubleCan cause “ripple effect” where many related businesses are jeopardized


businesses are jeopardized

3. Depression:If recession lasts into the next quarter we go into depressionLong periods of high unemployment, low consumer sales, many business failuresGDP falls rapidlyUS: (1930-1940) – Great Depression

4. Recovery:Unemployment decreases, demand for GUnemployment decreases, demand for G & S increases, & GDP rise



What are the four phases of the business cycle?y


CONSUMER PRICESInflation

Increase in the general level of pricesBuying power of the $ decreasesMost harmful to people living on fixed incomesMild inflation actually stimulates econ growth – wages raise slower than prices, prices are high, businesses make more $ & increase production & hire more people, new workers increase

dispendingCauses of inflation

Demand for G & S is greater than supplyWhen a larger supply of $ is spent on G & S: the prices willWhen a larger supply of $ is spent on G & S: the prices will increase

Measuring inflationCPI:Consumer Price Index – a number that compares prices in

i h i lione year with same item an earlier yearDeflation

Decrease in the general level of pricesUsually during recession/depression


Usually during recession/depression


What are the main causes of inflation?


**Activity**y2.2 Chapter 2 Research


INTEREST RATESINTEREST RATESInterest rates

The cost of $The cost of $Have major influence on econ activitiesHigher rates mean higher costsHigher rates mean higher costsPoorer credit rating = pay higher interest

Changing interest ratesChanging interest ratesDailyHigher $ in savings = lower ratesHigher $ in savings lower rates

More availabilityBorrowing increases = rates rise


7 Types of Interest RatesypPrime Rate

Rate banks give to best customersDiscount Rate

Rate financial institutions (banks) are charged to borrow federal funds (fed. res. bank)

T-bill RateShort term US Govt. debt obligations

13-Week


Treasury Bond RateYield on long-term US Govt. debt

20-year

M t R tMortgage RateAmount individuals pay to borrow for a home loanhome loan

Corporate Bond RateCost large U S Corporations pay toCost large U.S. Corporations pay to borrow

Certificate of Deposit (CD) RateCertificate of Deposit (CD) RateRate for 6-month time deposits


>> C H E C K P O I N THow do interest rates affect businessHow do interest rates affect business activities in our economy?

Interest rates can encourage or discourage borrowing & spending.

L llLower rates allow consumers greater spending power, which increases demand, productivity, and employment. , p y, p yBusinesses will likely pass on the cost of higher interest rates to consumers.


**Activity**

2.3 Interest Rates


LESSON 2LESSON 2--33

Other MeasuresOther Measures of Business ActivityyGoals

Discuss investment activities that promote economic growth.Explain borrowing activities by government, business, and consumers.g , ,Describe future concerns of economic growth


growth.

Key Terms

capital projectstockstockbondb d t lbudget surplusbudget deficitnational debt


INVESTMENT ACTIVITIESo Investing many ways:o Investing – many ways:

o You - time in school-futureB i h i i t bldo Businesses - purchasing-equipment,bldg

o Capital Projectso Spending by a business/gvt for item used

over a long period of timeo NOT - paper


Where does $ for CapitalWhere does $ for Capital Projects come from?

Personal savings$ you save & have on deposit – your “savings account”Savings rate of a country is an important econ growth factorSavings rate of a country is an important econ. growth factor

The stock marketStock – ownership of a company; also called “equity”Supply & Demand affect values a great dealSupply & Demand affect values a great deal

The bond marketBond – “debt” for a companyPurchase a bond – called a “creditor”; you have lent your $ to theminterest


>> C H E C K P O I N TName some examples of capital projectsName some examples of capital projects.

C it l j t i l d thCapital projects include the purchase of any item a business will use over anbusiness will use over an extended period of time such as land, buildings, & , g ,equipment.


BORROWINGGovernment debt

To provide services we demandB d t lBudget surplus

When spending is less than revenueBudget deficitg

Spend more than revenueNational Debt

Total amount owed by the Fed govtTotal amount owed by the Fed govt.

Business debtLoans, bonds, mortgagesg g

Consumer debtCredit card, auto loans, second mortgages


>> C H E C K P O I N TWhat is the cause of a budget deficit?What is the cause of a budget deficit?

When a government or organization spends more than it takes intakes in.


FUTURE ECONOMICFUTURE ECONOMIC CHALLENGES

Limited access to health careNeed for proper housing for manyNeed for proper housing for many peopleTraffic and crimeTraffic and crimeUnemployment



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


Economic Activity

Documents

Transcript of Economic Activity