2 Economic Activity 2-1 Measuring Economic Activity C H A P T E R 2 Economic Activity 2-1 Measuring Economic Activity 2-2 Economic Conditions Change 2-3 Other Measures of Business Activity

2-1 Measuring Economic Activity Goal 1 Define gross domestic product. Goal 2 Describe economic measures of labor. Goal 3 Identify economic indicators for consumer spending.

KEY TERMS Gross Domestic Product (GDP) GDP per capita unemployment rate productivity personal income retail sales

GROSS DOMESTIC PRODUCT (GDP) Components of GDP Consumer spending for food, clothing, housing and other aspects Business spending for buildings, equipment, and inventory items Government spending to pay employees and to buy supplies and other goods/services The exports of a country less the imports into the country Only final goods are counted for GDP When GPD increases from year to year=growing economy

GROSS DOMESTIC PRODUCT (GDP) Comparing GDP Total goods and services produced GDP per capita Total GDP/total population That makes it the best measurement of a country's standard of living. It tells you how prosperous a country feels to each of its citizens. https://www.youtube.com/watch?v=Z0qHA93oOSc

COMPARISON OF GDP IN SELECTED COUNTRIES

COMPARING GROSS DOMESTIC PRODUCT

Checkpoint  What types of economic activities are not included in GDP? GDP only applies to reported final goods and services. (haircut, car, book, lawn service) Money earned for goods or services that are not reported would not be included. (under the table) Goods and services used in the manufacture of other products are only counted once—in the final product. (finished house, not materials used)

LABOR ACTIVITIES Employment People over 16 able or seeking work Unemployment rate Can work, but unable to find a job Low unemployment rate is better Productivity-production output in relation to a unit of input, such as a worker If wages increase faster than gains in productivity, the cost of producing goods increases and prices rise Workers earn more, but can buy less

Checkpoint  How can productivity be increased? Productivity can be increased by improvements in capital resources (equipment and technology), worker training, and management techniques.

CONSUMER SPENDING Personal income Retail sales Salaries and wages as well as investment income and government payments to individuals Retail sales The sales of durable and nondurable goods by consumers Are people afraid to spend money?

Checkpoint  What are the main sources of personal income? Sources of personal income include wages, salaries, investment income, and government payments.

2-2 Economic Conditions Change Goal 1 Describe the four phases of the business cycle. Goal 2 Explain causes of inflation and deflation. Goal 3 Identify the importance of interest rates.

KEY TERMS business cycle prosperity recession depression recovery inflation price index deflation

THE BUSINESS CYCLE Movement of the country from one economic condition to the another and back again Prosperity-low unemployment, high production, wages are good, GDP increases Recession-economy slows down, demand begins to decrease, lower production, unemployment rises, GDP slows for 2+ quarters

THE BUSINESS CYCLE Movement of the country from one economic condition to the another and back again Depression-prolonged period of high unemployment, weak sales, and business failures, GDP falls rapidly, Recovery-unemployment begins to decrease, demand for goods and services increase, consumers spend money, GDP begins to rise. What do you think the US is in now, why?

Checkpoint  What are the four phases of the business cycle? Prosperity Recession Depression Recovery

CONSUMER PRICES Inflation-increase in the general level of prices Causes of inflation-high demand, low supply Mild inflation (2-3%) can stimulate economic growth Measuring inflation CPI-Consumer Price Index, compares prices from one year to the next Deflation-decrease in general level of prices Occurs in periods of recession and depression Prices of products are lower, people have less $ What are some items that are cheaper now?

Checkpoint  What are the main causes of inflation? Inflation is an increase in the general level of prices that occurs when the demand for goods and services is greater than supply. "I flew to U.S. to buy toilet paper"  What do you think the article/video clip is about? Video link

INTEREST RATES Interest-rent on money borrowed Higher rates = higher business cost People with bad credit pay higher interest rates Types of interest rates Prime rate-what banks use for best customers Discount rate-what financial institutions are charged to borrow from Federal Reserve Bank Mortgage rate-to purchase new home Others include: T-Bill rate, treasury bond rate, corporate bond rate, certificate of deposit Changing interest rates-change daily Supply and demand of money is major influence on rate When borrowing increases, interest rates likely to rise (happening now)

Checkpoint  How do interest rates affect business activities in our economy? Interest rates can encourage or discourage borrowing and spending. Lower interest rates allow consumers greater spending power, which increases demand, productivity, and employment. Businesses often pass on the cost of higher interest rates to consumers.

2-3 Other Measures of Business Activity Goal 1 Discuss investment activities that promote economic growth. Goal 2 Explain borrowing activities by government, business, and consumers. Goal 3 Describe future concerns of economic growth.

KEY TERMS capital project stock bond budget surplus budget deficit national debt

INVESTMENT ACTIVITIES Personal savings The stock market The bond market

Checkpoint  Name some examples of capital projects. Capital projects include the purchase of any item a business will use over an extended period of time such as land, buildings, and equipment.

BORROWING Government debt Business debt Consumer debt

Checkpoint  What is the cause of a budget deficit? A budget deficit occurs when a government or organization spends more than it takes in.

FUTURE ECONOMIC CHALLENGES Emerging markets Weak economies Consumer preferences and behavior

Checkpoint  What economic challenges do countries face in the future? Future economic concerns for any country include the ability to increase its output and provide a means for its citizens to meet the basic needs of food and shelter, adequate health care, education, transportation, employment, and safety.