1. Essential Standard 1.00 Understand the role of business in the global economy. 1

2. Objective 1.02 Understand economic conditions 2

3. Measuring economic activities Classifying economic conditions Topics 3

4. Measuring Economic Activities 4

5. Gross Domestic Product (GDP) GDP is the highly used measurement to determine a country’s overall economic output. GDP is a country’s total dollar value of all final goods and services produced in one year. GDP Major categoriesof GDP –Individual spending –Business spending –Government spending –Exports & imports Name some products or services you have purchased or from which you have received benefits. Which component of GDP would you classify the product or service you named? 5

6. GDP per capita GDP per capita – output per person =_________GDP__________ Total Population 6

7. Labor Activities Unemployment rate –Unemployment rate includes the people of the labor force that are unemployed. Productivity means … –What can help you be more productive in a computer lab? –What can contribute to employees increasing their production? 7

8. Consumer Spending Measurement of consumer spending: Personal Income Personal income includes the total wages and salaries plus investment income and government payments to individuals. Retail Sales Retail Sales include the sales of goods and services purchased to indicate the spending patterns 8

9. Investment Activities The money used for capital projects comes from three main sources: Personal savings Businesses use money deposited in personal saving accounts to buy equipment or products for their businesses. Savers earn interest on money used by companies and other individuals. The stock market Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock. The bond market The bond market make available for businesses and government to borrow money. Bondholders earn interest on money loaned to businesses and government. How does each investment activity impact economic growth? What are some examples of investment activities? 9

10. Borrowing Activities … –Government –Governments borrow money to finance projects like schools, public highways, and parks. If the government spend more money than it collects, then a budget deficit is resulted. –Businesses –Companies may borrow money to start up or expand. Using borrowed fund efficiently can result in an increase in sales and profits. How can government borrowing lead to a budget deficit? How can using borrowed money wisely impact businesses? 10

11. Measuring Economic Activities GDP GDP Per capita Labor Activities Consumer Spending Investment Activities Borrowing Activities 11

12. Classification of Economic Conditions 12

13. Prosperity Employment rate and demand for products and services are high. Recession Unemployment rate is increasing and demand for products and services are lowering. Depression Unemployment rate is high and demand for products and services is lowering. Recovery Unemployment rate is lowering and demand for products and services is increasing. 13

14. Economic Conditions Change What is inflation? –Inflation is an increase in the general level of prices. What causes inflation? –During an inflation, the demand for products and services exceeds the supply, which may cause an increase in prices. –Inflation impacts buying power by decreasing the amount of power. 14

15. Economic Conditions Change What is deflation? –Deflation is a decrease in the general level of prices. How do lower prices impact deflation? –During deflation, the prices of products and services are lowered, but people have less money for purchases. 15

16. Year 123 Income Income percent change from year 1 $36,000 n/a $38,000 5.6% $21,000 -42% Gallon of milk cost Gallon of milk cost percent change from year 1 $2.49 n/a $2.99 20% $3.19 28% Over a three-year period, how has the income been impacted by the cost of a gallon of milk? 16

17. Economic Conditions Change What is Consumer Price Index (CPI)? –CPI (Consumer Price Index) is a number that compares prices in one year with some earlier base year. How is CPI inflation rate calculate? Change in price index Inflation rate = –––––––––––––––––– X 100 Initial price index 17

18. Interest Rates Types: –Prime rate –Discount rate –T-bill rate –Treasury bond rate –Mortgage rate –Corporate bond rate –Certificate of deposit rate What is the primary purpose of each? How do interest rates impact businesses? 18

19. Interest Rates Types: –Prime rate is usually made available to banks’ best customers. –Discount rate is offered by the federal reserve to financial institutions for loans. –T-bill rate is the yield for short-term (13 weeks) government debt. –Treasury bond rate is the yield for long-term government debt. –Mortgage rate is the amount borrowers pay for home loans. –Corporate bond rate is the cost of loans for large US corporations. –Certificate of deposit rate paid for deposits for a period of time ( 6, 12, or 18 months). 19

20. What are interest rates? Interest rates represent the cost of borrowing money. How do interest rates impact businesses? Higher interest rates for businesses usually mean higher business cost. When borrowing increases, interest rates are likely to rise. Economic Conditions Change 20