Understand economic conditions 1

 Measuring economic activities  Classifying economic conditions 2

 GDP: a country’s total dollar value of all newly produced goods and services inside our boarders  Major categories included in GDP ◦ Consumer spending ◦ Business spending ◦ Government spending ◦ Exports & imports: 3

GDP per capita = output per person = GDP _ Total Population of the Country 4

Measurements of consumer spending:  Personal Income: includes the total wages and salaries plus investment income and government payments to individuals.  Retail Sales: sales of durable and non durable goods and services purchased by consumers (autos, building materials, furniture, gas, $ spent at restaurants, etc) 5

6 Investment (for the future)  The money used for capital projects (land, buildings, equipment, research) comes from three main sources: Personal savings: ◦ Banks lend this money to businesses which use the borrowed money to buy equipment or products for their businesses. ◦ Savers, in turn, earn interest on money used by companies and other individuals. ◦ What happens if people don’t save??

7 Investment (for the future)  The money used for capital projects (land, buildings, equipment, research) comes from three main sources: The stock market: ◦ Stock represents ownership in a company. If a company wants to expand, it can sell stock to raise money. ◦ Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock.

8 Investment (for the future)  The money used for capital projects (land, buildings, equipment, research) comes from three main sources: The bond market: ◦ Bonds represent debt for a company. If a company wants to expand, it can sell bonds to raise money.  Bondholders purchase the bonds, and earn interest on the money they have loaned to businesses and the government.  Eventually, the company pays the bondholders back their money, with interest.

9 Borrowing Activities … How does the government make money? What happens if they spend more than they make? This overspending is known as a budget deficit. U.S. National Debt U.S. National Debt Companies may borrow money to start up or expand. Using borrowed funds efficiently can result in an increase in sales and profits.

Classification of Economic Conditions 10

 Unemployment rate: people that are not working, but are willing to work, are looking for work, but can’t find a job.  People that have given up DO NOT COUNT  Productivity How much output can one unit of input create? (Measured in hours)  If Productivity increases, do we need to hire more or less people? 11

◦ U.S. Dec 2010 rate=9.4%  represents over 14,500,000 people ◦ North Carolina’s Dec 2010 rate=9.8%  North Carolina’s July 2010 rate=9.8% ◦ U.S. lowest: North Dakota 3.8%  Lowest area unemployment: Lincoln, Nebraska 3.5% ◦ U.S. highest: Nevada 14.5%  Highest area unemployment: El Centro, CA 28.3% ◦ What is considered NORMAL Unemployment? 12

PROSPERITY RECESSION DEPRESSION RECOVERY Situation PROSPERITYRECESSIONDEPRESSIONRECOVERY Employment GDP Actions of businesses

 Consumer Price Index (CPI)  Inflation – What is it?  Causes of inflation ◦ Wages, Increase in Money Supply  Deflation – What is it?  Causes of deflation  Why is Inflation Good and Deflation Bad? 14