chapter 2 economic activity. objectives describe gross domestic product describe gross domestic...
TRANSCRIPT
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Chapter 2Chapter 2Economic Economic ActivityActivity
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ObjectivesObjectives
Describe Gross Domestic ProductDescribe Gross Domestic Product Identify and describe economic Identify and describe economic
measures of labor.measures of labor. Identify economic indicators for Identify economic indicators for
consumer spending.consumer spending.
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TopicsTopics
Measuring Economic ActivityMeasuring Economic Activity Economic Conditions ChangeEconomic Conditions Change Other Measure of Business ActivityOther Measure of Business Activity
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Measure Business ActivityMeasure Business ActivityKey TermsKey Terms
Gross Domestic Product (GDP)Gross Domestic Product (GDP) GDP per capitaGDP per capita Unemployment RateUnemployment Rate ProductivityProductivity Retail SalesRetail Sales
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Gross Domestic ProductGross Domestic Product
Economic GrowthEconomic Growth Increase in the production of goods and Increase in the production of goods and
services in an economic system.services in an economic system. Measurement of how your economy Measurement of how your economy
is doing from year to year.is doing from year to year. Gross Domestic Product (GDP)Gross Domestic Product (GDP)
Total dollar value of all final goods and Total dollar value of all final goods and services produced in a country during one services produced in a country during one year.year.
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Country ComparisonCountry Comparison
Source: CIA World Factbook
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Components of GDPComponents of GDP
1.1. Consumer spending for food, Consumer spending for food, clothing, and other needs.clothing, and other needs.
2.2. Businesses buying capital Businesses buying capital resources.resources.
3.3. Government SpendingGovernment Spending
4.4. Exports less than ImportsExports less than Imports
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Comparing GDPComparing GDP
Ways to measure economic growth:Ways to measure economic growth: GDP per capita:GDP per capita:
Output per personOutput per person
GDP Per Capita =Total GDP / Total GDP Per Capita =Total GDP / Total PopulationPopulation Increase = Economic GrowthIncrease = Economic Growth
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EmploymentEmployment
145 million people work in the U.S.145 million people work in the U.S. Labor Force; 16 years or olderLabor Force; 16 years or older Unemployment RateUnemployment Rate
The portion of people in the labor force The portion of people in the labor force who are not working.who are not working.
United States:United States: High: 10.80 % in November of 1982 High: 10.80 % in November of 1982 Low: 2.50 % in May of 1953Low: 2.50 % in May of 1953 9.60 % in August of 20109.60 % in August of 2010
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ProductivityProductivity
Production output in relations to a Production output in relations to a unity of input.unity of input.
Improve upon capital resourcesImprove upon capital resources
Wages = Cost of Producing Goods Wages = Cost of Producing Goods
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Consumer SpendingConsumer Spending
Personal IncomePersonal Income Refers to salaries and wages as well as Refers to salaries and wages as well as
investment income and government investment income and government payments to individuals.payments to individuals.
Retail SalesRetail Sales Sales of durable and nondurable goods Sales of durable and nondurable goods
bought by consumers.bought by consumers.
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Economic Conditions Economic Conditions ChangeChange
We all go through good and bad We all go through good and bad times.times.
Business Cycle:Business Cycle: Movement of the economy from one Movement of the economy from one
condition to another.condition to another. 4 Phases4 Phases
ProsperityProsperity RecessionRecession DepressionDepression RecoveryRecovery
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ProsperityProsperity
Period in which:Period in which: Most people are workingMost people are working Business are producing goods/services Business are producing goods/services
in record numbersin record numbers Wages are goodWages are good GDP increasesGDP increases
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RecessionRecession
Period in which:Period in which: Demand decreasesDemand decreases Business lower productionBusiness lower production Unemployment beginsUnemployment begins GDP growth is slow movingGDP growth is slow moving
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DepressionDepression
Phased marked by:Phased marked by: High unemploymentHigh unemployment Weak consumer salesWeak consumer sales Business failureBusiness failure
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RecoveryRecovery
Phase in which:Phase in which: Unemployment declinesUnemployment declines Demand increasesDemand increases GDP risesGDP rises
Economy moves closer to ProsperityEconomy moves closer to Prosperity
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InflationInflation
Increase in the Increase in the general level of general level of prices.prices. 5% increase5% increase
$100 => $105$100 => $105
Causes:Causes: High demand for High demand for
Goods/ServicesGoods/Services Low supply Low supply
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Measure InflationMeasure Inflation
Consumer Price Index (CPI):Consumer Price Index (CPI): A number that compares prices in one A number that compares prices in one
year with prices in some earlier yearsyear with prices in some earlier years Cost of necessities may increase fast Cost of necessities may increase fast
than non-necessitiesthan non-necessities Necessities (Food, Gas, Health Care)Necessities (Food, Gas, Health Care)
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DeflationDeflation
Means a decrease in the general Means a decrease in the general level of prices.level of prices.
Price of production is low, but Price of production is low, but people have less money to spend.people have less money to spend.
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Interest RatesInterest Rates
Cost of spending money.Cost of spending money. Higher interest rates = Higher business costHigher interest rates = Higher business cost Types of Interest Rates:Types of Interest Rates:
Prime Rate: Rate available to the best business Prime Rate: Rate available to the best business customer.customer.
Discount Rate: Money used by financial Discount Rate: Money used by financial institutions.institutions.
Mortgage Rate: Amount borrowed to purchase a Mortgage Rate: Amount borrowed to purchase a home.home.
Corporate Bond Rate: Amount used by a large. Corporate Bond Rate: Amount used by a large. U.S. Corporation.U.S. Corporation.
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Other MeasuresOther MeasuresKey TermsKey Terms
Capital ProjectCapital Project StockStock BondBond Budge SurplusBudge Surplus Budget DeficitBudget Deficit National DebtNational Debt
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Investment ActivitiesInvestment Activities
Think about where you want to be in Think about where you want to be in the future?the future? College or Work ForceCollege or Work Force
Capital Projects:Capital Projects: Involves spending by businesses for Involves spending by businesses for
capital resources and products/services.capital resources and products/services. Main Sources:Main Sources:
Personal SavingsPersonal Savings Stock InvestmentStock Investment BondsBonds
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Personal SavingsPersonal Savings
Money deposited from a bank or Money deposited from a bank or financial institution.financial institution.
Earn interest on money depositedEarn interest on money deposited Key element in economic growth.Key element in economic growth.
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The Stock MarketThe Stock Market
Ownership in a corporation.Ownership in a corporation. or also called “Equity”or also called “Equity”
Value towards shares of stockValue towards shares of stock Affected by Supply and DemandAffected by Supply and Demand Higher earnings of a companyHigher earnings of a company
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The Bond MarkedThe Bond Marked
Represents Represents debtdebt for an organization. for an organization. Purchasing of a corporate or Purchasing of a corporate or
government bond (Creditor)government bond (Creditor) Pay interest on the money usedPay interest on the money used
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BorrowingBorrowing
Government DebtGovernment Debt Borrowing to produce Schools, Building, Borrowing to produce Schools, Building,
Highways, etc…Highways, etc… Budget Surplus:Budget Surplus:
Spending less than it takes in.Spending less than it takes in. Budget Deficit:Budget Deficit:
Spending more than it takes in.Spending more than it takes in. National Debt:National Debt:
Amount owed to the Federal Amount owed to the Federal Government.Government.
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BorrowingBorrowing
Business DebtBusiness Debt Loans, bonds, and mortgages are used Loans, bonds, and mortgages are used
to finance businesses.to finance businesses. Debt Debt Poor Decisions Poor Decisions
#1 reason for business failure.#1 reason for business failure.
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BorrowingBorrowing
Consumer DebtConsumer Debt Credit Cards, Auto, Mortgage, College Credit Cards, Auto, Mortgage, College
Loans, etc…Loans, etc… Using cautious methods can help Using cautious methods can help
improve our economy growth.improve our economy growth.