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Agenda Economic Indicators Share out posters throughout material

Measuring Economic Performance

Economic Fluctuations What was “The Great Depression?” 1929-Greatest economic decline. Economic Fluctuations – Ups and downs in economic activity. Q: Has the economy/standard of living always been the way if is now in the USA? A: No, the economy is always going up and down, in what is called the business cycle.

The Business Cycle The repeated rise and fall of economic activity over time. Pattern of cycles… Is the pattern is regular? Business cycles have four phases. The rise and fall of economic activity is directly related to: -Rising Prices -A new business coming to town and providing jobs -A factory closing causing hundreds of people to loose jobs Pattern of Cycles Irregular- but still in general cycles (good times to bad times and back to good) Cycle has 4 phases prosperity (peak) recession (contraction) depression (trough) Recovery (expansion)

Prosperity Peak Economy is expanding rapidly. Highest level of economic activity in a cycle. Economy is expanding rapidly. New businesses open, production of goods and services is high. Many jobs available. People who want to work are working Shopping malls are busy.

Contraction Also known as Recession Drop in the level of business activity. -Demand beginning to decrease -Business lower production of goods and services -Unemployment begins to rise -May not be too serious or last too long but can signal troubles for some workers Auto workers are often 1st to feel a pinch

Depression Trough Lowest level of business activity in a particular cycle. -After a recession deepens and spreads throughout the entire economy. -prolonged period of high unemployment -weak sales -GDP falls "The Great Depression" 1930-1940 -25% of the American Labor Force was unemployed -many people could not afford basic needs. -food and clothing were given out at churches. (tell story of people keeping lint to make things)

Expansion Rise in business activity. Also known as Recovery -Unemployment begins to decrease -demand for goods and services increase -GDP goes up -People get their jobs back -Recovery may be slow or fast Nation moves into prosperity again.

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Measuring Economic Activity Overall objective of the economy is to produce goods and services to satisfy people’s needs and wants. How do economists determine the future state of the economy? -The government uses different ways to measure the growth of our economy. -Economic growth refers to a steady increase in production of goods and services in an economic system. -Q: How do economists determine the future state of the economy. -A: They look at Economic Indicators.

Economic Indicators Important data or statistics that measure economic activity and business cycles. GDP Inflation Unemployment -Employment Rate -Rate of business failures -GDP= How much we are producing as a country -The Standard of Living

GDP Dollar value of all final goods and services produced in the nation in a single year. To calculate the economists compute the sum of all goods and services. -Formerly known as GNP-Gross Natioanl Product

Four main areas used to determine GDP Customer goods and services. Businesses goods and services. Government goods and services. Goods and services sold to other countries.

Standard of living The way you live is measured by the kinds and quality of goods and services you can afford. GDP is one way to measure how people are living in that particular country. Depends on the amount and kinds of goods the people in that country enjoy. -We use our earnings to buy the things we need to maintain and imporve our standard of living. -Your worker role, then supports your consumer role.

Standard of Living (cont.) An economic system that can provide for it’s people’s basic needs and can produce things the people want and can afford probably will have a high standard of living.

Inflation A prolonged rise in level prices for goods and services. Reduces purchasing power of money- your money is worth less. “when a dollar is not worth a dollar” Who is hurt by this? People with fixed income are hurt by this. –Retired people Inflation can occur when the demand for goods and services are greater that the supply. When a large supply of money earned or borrowed, is sent for goods that are in short supply, proced increase.

Inflation Rate The percentage by which the average level of prices in an economy rises. Usually a percentage per year. The speed at which prices are generally rising. http://www.usinflationcalculator.com/ Suppose food is the only thing people buy. 10% increase (inflation rate) Beginning of the year one might spend $1.00 on food by the end of the year they will pay $1.10 for the same food. -Inflation was big in the 1970's and 1980's -People, government, and businesses continued to spend money more and more even though proced kept going up. -Evne though wages tend to increse during inflation the proces of goods and services increase at a faster pace. -In the U.S. average inflation is 3-6% each year.

Consumer Price Index http://www.bls.gov/cpi/home.htm You can check out this web-site to see what the proce was of some products in the past year and current.

Unemployment Number of people who do not have a job during a given period of time. What could be reasons for unemployment? A: Lower production- companies closing -health reasons

Unemployment Rate The percentage of unemployed workers looking for jobs. Why is it important that they are looking for jobs? In 1982-1983 the rate was 10% this can be considered a bit high. -To count in the unemployment rate they must be. -old enough to work -looking for work -willing/able to work

Two Main Ways The Government Influences the Economy Fiscal Policy Monitary Policy

Fiscal Policy Government tries to stimulate or dampen the economy through how it collects revenue (taxes) and how it spends money. If the govt. cuts our taxes what are they trying to get us to do? What can the govt. do to slow down the economy? Cut taxes increase spending, because they have more money to take home. This could help bring the country out of a recession. (people have to spend their money though) If inflation is a problem they will slow down the economy. The govt will cut their own spending- they are a big consumer of goods and services. They could also increase taxes.

Monetary Policy Government also tries to stabilize the economy through: Controlling the supply of money The cost of borrowing money- credit- according to the needs of the economy.

Monetary Policy To slow down the economy it must tighten the supply of money and credit available to businesses and individuals. To stimulate the economy they might expand the money supply.