chapter 4 global economies 1 section 4.2 understanding the economy marketing essentials
TRANSCRIPT
Chapter 4 Global Economies 1
Chapter 4 Global Economies
Section 4.2 Understanding the Economy
Marketing EssentialsMarketing Essentials
Chapter 4 Global Economies 2
SECTION 4.2SECTION 4.2
What You'll LearnWhat You'll Learn
The goals of an economy
The various measurements used to analyze an economy
The four phases of the business cycle
Understanding the EconomyUnderstanding the Economy
Chapter 4 Global Economies 3
SECTION 4.2SECTION 4.2 Understanding the EconomyUnderstanding the Economy
Why It's ImportantWhy It's Important
Soon you will be voting and you may also decide to invest in the stock market. These decisions can impact your financial well being, so it is essential that you understand how an economy is measured and what factors contribute to a strong or weak economy. It is important to know how you, businesses, and the government influence the economy. That way you will know how to invest your money and cast your ballots.
Chapter 4 Global Economies 4
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Key TermsKey Terms
productivity gross domestic product (GDP) inflation Consumer Price Index (CPI) Producer Price Index (PPI) business cycle prosperity (expansion) recession depression recovery
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It is the goal of all economies to:
When Is an Economy Successful?
increase productivity
decrease unemployment
maintain stable prices
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SECTION 4.2SECTION 4.2 Understanding the EconomyUnderstanding the Economy
Economic Measurements
Accurate economic measurements help determine a nation's economic strength.
employee productivity
Gross Domestic Product (GDP)
inflation
unemployment
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Employee Productivity
Productivity is output per worker hour. It is usually measured over a defined period of time, such as a week, month, or year.
Businesses can increase their productivity by investing in new equipment or facilities that increase efficiency, providing additional training, and providing financial incentives.
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Productivity is a crucial factor in a country's standard of living. What would you surmise about the United States' standard of living for the last five years depicted on this chart? Why do you think employee productivity is increasing?
Productivity and Standard of Living
Source: Bureau of Economic Analysis, Bureau of Labor Statistics
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Gross domestic product is a measure of the goods and services produced using labor and property located in a country.
Using GDP, governments track an entire nation's production output.
Gross Domestic Product (GDP)
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GDP is the total output of goods and services produced in a country. What does this chart tell you about the United States' GDP and its economy in general? How do you think GDP would be affected by a recession?
Gross Domestic Product
Source: Bureau of Economic Analysis, Bureau of Labor Statistics
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Inflation refers to rising prices. A low inflation rate (1-5 percent) shows that an economy is stable.
Controlling inflation is one of a government's major goals. The United States measures inflation in two ways:
Inflation Rate
Consumer Price Index (CPI)
Producer Price Index (PPI)
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SECTION 4.2SECTION 4.2 Understanding the EconomyUnderstanding the Economy
The Consumer Price Index (CPI), also called the cost-of-living index, measures the change in price of some 400 retail goods and services used by the average urban household, such as food, housing, utilities, transportation, and medical care. The Core CPI excludes food and energy prices, which tend to be unpredictable.
Inflation Rate: Consumer Price Index
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SECTION 4.2SECTION 4.2 Understanding the EconomyUnderstanding the Economy
The Producer Price Index (PPI) measures wholesale price levels in the economy. Wholesale price increases often get passed along to the consumer. The Core PPI excludes food and energy prices, which tend to be volatile. When there is a drop in the PPI, it is generally followed by a drop in the CPI.
Inflation Rate: Producer Price Index
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CPI and PPI are barometers for inflation. The Core CPI and Core PPI take out the volatile food and energy prices from the indexes. Based on these three charts, how would you describe inflation in the United States for the latter part of the 1990s?
Inflation Barometers
Source: Labor Department Source: Labor Department Source: Labor Department
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All nations chart unemployment rates.
The higher the unemployment rate, the greater the chances of an economic slowdown.
The lower the unemployment rate, the greater the chances of an economic expansion.
Unemployment Rate
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One of the goals of an economy is low unemployment. After viewing this chart on the jobless rate, what can be said about the United States' attempt to reach that goal?
Jobless Rate
Source: Bureau of Labor Statistics Source: Bureau of Labor Statistics
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The Consumer Confidence Index (CCI) measures consumer confidence about personal finance, economic conditions, and buying conditions. Retail sales are studied to see if market actions match the CCI. Housing starts, and truck and auto sales are reviewed. These expenditures tend to be affected by the economy and interest rates.
Other Indicators
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Consumer confidence is another economic indicator that provides a view of how consumers feel about their economic prospects (employment, spending). What conclusions can be drawn from a review of these three charts? What trend is apparent? Why should marketers be concerned with changes in consumer confidence?
Consumer Confidence
Source: The Conference Board Source: The Conference Board Source: The Conference Board
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Sometimes an economy grows, and at other times it slows down. These recurring changes are called the business cycle. The business cycle has four phases:
The Business Cycle
prosperity
recession
depression
recovery
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Prosperity is a period of economic growth and expansion. Nationwide there is low unemployment, an increase in the output of goods and services, and high consumer spending.
Prosperity
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Recession is a period of economic slowdown. Unemployment begins to rise, fewer goods and services are produced, and consumer spending decreases. Recessions can end relatively quickly or last for a long period of time.
Recession
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Depression is a period of prolonged recession. Consumer spending is very low, unemployment is very high, and production of goods and services is down significantly. Poverty results because many people are out of work and cannot afford to buy food, clothing, or shelter. The Great Depression of the early 1930s best illustrates a depression.
Depression
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Recovery is a period of renewed economic growth following a recession or depression. Recovery is characterized by reduced unemployment, increased consumer spending, and moderate expansion by businesses. Periods of recovery differ in length and strength.
Recovery
Chapter 4 Global Economies 24
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A government influences business cycles through its policies and programs. When taxes are raised, businesses and consumers have less money with which to fuel the economy.
The government may reduce interest rates, cut taxes, or institute federally funded programs to spark a depressed economy.
Factors that Affect the Business Cycles
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The federal funds rate (rate banks charge each other for overnight loans) and the discount rate (rate the U.S. Federal Reserve charges banks that borrow money from it) are used to speed up or slow down an economy. From this chart, what do you think the motivation of the Federal Reserve Board was in 1991? In 1999? Would you prefer to start a new business when interest rates are high or low?
Managing the Economy
Source: Federal Reserve, Labor Department
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A global economy makes possible a global recession, because economies of different countries depend on economic stability in other countries and imports or exports from other countries.
The Global Economy
Example: Thailand devalued its currency in 1997, causing the collapse of other Asian economies and a huge drop in the U.S. stock market.
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4.2 ASSESSMENTASSESSMENT
Reviewing Key Terms and Concepts
1. What are the goals of any economy?
2. Name four measurements used to gauge the success of an economy.
3. Describe in the briefest terms what each of the following stands for: GDP, CPI, PPI, and Core CPI.
Slide 1 of 2
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4.2 ASSESSMENTASSESSMENT
Reviewing Key Terms and Concepts
4. Describe the four phases of the business cycle.
5. What stage of the business cycle was the United States in during the year 2000?
Slide 2 of 2
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4.2 ASSESSMENTASSESSMENT
Thinking Critically
Assume the economy was growing rapidly and there were increases in the CPI, PPI, as well as in employee wages and spending. What might the government do to reduce the risk of inflation?
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Marketing EssentialsMarketing Essentials
End of Section 4.2