Do Now Write down anything you know about the “Great Recession” that began in 2007 What happened to overall employment? What happened to the economy? How did this happen? Is the economy still in the same economic state today as it was then?

Economic Activity in a Changing World Chapter 3

Historical Basis of America’s Economic System Colonial Era Over 200 years ago Primarily farmers Agricultural economy: people live off land Service economy: colonists work together and barter for services Industrial Revolution Mid-1800s Industrial economy: society relies on machinery to produce goods Mid-1900s information economy: internet became integral part of doing business

Influences on Economics Major purpose of economic system is to produce goods and services wanted by people Figures used to measure how well economy is performing, known as economic indicators Measure how much a country is producing, growth, and how one country compares to another

Gross Domestic Product One way to tell how well economy is performing is to determine how many goods and services it produces during a certain period of time, or its productivity Gross domestic product (GDP): total value of goods and services produced in a country in a given year United States has a very high GDP compared to other countries $16.2 trillion in 2013

GDP Calculation To calculate, economists compute sum of goods and services, including: 1.Consumer goods and services 2.Business goods and services (investment) 3.Government goods and services 4.Exported goods and services Sold to other countries Does not include information not reported to the government Babysitting, mowing lawns

Turn & Talk In your groups: Brainstorm other forms of goods or services that allow individuals to earn an income, but are not included in GDP Why do you think they are not included in GDP numbers? Do you think it should be included? Why or why not?

United States & GDP Standard of living: amount of goods and services the average citizen can buy Much higher in the United States than other countries Growth of GDP & standard of living indicated the economy is growing

Unemployment Rate Measures number of people who are able to work but don’t have a job during a given period of time Different types include: Temporary: just quit a job, just graduated, looking for work Seasonal: may only work during a certain part of the year, like harvesting crops or working in retail during the Holidays Changes in industry: new technology crowding out and replacing workers Economic slow down: many individuals laid off and looking for work High unemployment, economy doing poorly Low unemployment, economy doing well Why did this happen?

Making Connections Imagine that you have a full-time job Due to rapid technological advancement, you discover that automation may replace you, a human being, in the workplace How does this effect the unemployment rate? How would the unemployment rate impact GDP?

Inflation Rate General increase in cost of goods and services Happens when economy begins to be more productive More people work, the more money they make, hence, the more money they demand and spend As demand increases, producers create more and increase prices To pay for higher prices, workers demand higher wages Wages increase, producers raise prices again VICIOUS CYCLE CALLED HYPERINFLATION!!!

Deflation Decrease in costs of goods and services Occurs when supply of goods is greater than demand for goods Suppliers have to cut prices and cut production As a result, people have less money to buy goods, so demand continues to fall Controlling productivity and keeping certain number of unemployed helps prevent both inflation and deflation by reducing risk of making too many goods or workers demanding higher wages

Budget Deficit Government revenue in form of collecting taxes Pays for defense, education, social security Budget deficit: when government spends more on programs than it collects in taxes 1980s characterized by cutting taxes and increased spending Government forced to borrow money from banks and other countries, all contributing to the national debt Happens to many developing countries

Budget Surplus Budget surplus: when government’s revenue exceeds expenditures in a one-year period Can cut taxes, reduce national debt, or increase spending

Short Reading 3 groups of 5 Read your respective article with your group and write down main points about the article that properly summarizes that article It is your responsibility to educate your classmates on your respective article, so take the necessary time to review! Ask if you have questions about meaning within articles Tape your poster to the front board and take notes on the other posters with your group Be ready to discuss!

Exit Slip Which economic indicator do you feel is most representative of the health of the economy? Why this economic indicator in particular?