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

Understand economic conditions Objective 1.02 Understand economic conditions

Topics Measuring economic activities Classifying economic conditions

Measuring Economic Activities

Measuring Economic Activities Gross Domestic Product (GDP) GDP: a country’s total dollar value of all final goods and services produced in one year. Most commonly used measure to determine a country’s overall economic growth Growth in GDP Major categories included in GDP Consumer spending: for food, clothing, housing, other consumer items Business spending: for buildings, equipment, inventory Government spending: for employee pay, and to purchase supplies and other goods and services Exports & imports: Exports out of the country (minus) Imports into the country 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 per capita GDP per capita = output per person Total Population of the Country

Measuring Economic Activities Labor Activities Unemployment rate: includes the people of the labor force that are not working, but are willing to work, are looking for work, but can’t find a job. Productivity means …The production output in relation to a unit of input (by a worker.) Gains in Productivity Result in Record Output What can contribute to employees increasing their production? Equipment, technology, training, management Unemployment rate includes the people of the labor force that are unemployed. Productivity: Answers will vary. The core responses should include equipment, technology, training, and management.

Measuring Economic Activities Labor Activities U.S. 12/10 rate=9.4% represents over 14,500,000 people North Carolina’s 12/10 rate=9.8% North Carolina’s 07/10 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% Raleigh/Cary rate=7.8% 07/10=8.4% Current highest NC is Rocky Mt.=12.6% Unemployment rate includes the people of the labor force that are unemployed. Productivity: Answers will vary. The core responses should include equipment, technology, training, and management.

Measuring Economic Activities Consumer Spending 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) Personal income includes the total wages and salaries plus investment income and government payments to individuals. Retail Sales include the sales of goods and services purchased to indicate the spending patterns

Measuring Economic Activities Investment (for the future) The money used for capital projects (land, buildings, equipment, research) comes from three main sources: Personal savings: People and businesses deposit money in bank savings accounts. Banks then 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?? 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. Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock. The bond market make available for businesses and government to borrow money. Bondholders earn interest on money loaned to businesses and government.

Measuring Economic Activities 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. 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. Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock. The bond market make available for businesses and government to borrow money. Bondholders earn interest on money loaned to businesses and government.

Measuring Economic Activities 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. 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. Higher earnings for businesses increases their value, which causes a demand for people wanting to buy the businesses stock. The bond market make available for businesses and government to borrow money. Bondholders earn interest on money loaned to businesses and government.

Borrowing Activities … By Governments: If governments want to spend more than they brings in through taxes and fees, they may have to borrow money. This overspending is known as a budget deficit. 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. 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. Companies may borrow money to start up or expand. Using borrowed fund efficiently can result in an increase in sales and profits.

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

Classification of Economic Conditions

PROSPERITY RECESSION RECOVERY DEPRESSION PROSPERITY RECESSION Situation PROSPERITY RECESSION DEPRESSION RECOVERY Employment trend Labor: People who want to work are working; unemployment low Wages: Good Unemployment increases as workers are laid off. Prolonged period of high unemployment Unemployment decreases companies begin to rehire workers Supply and demand of goods and services trend/GDP GDP: Increasing Consumer Demand: Increasing Demand decreases as people lose jobs; GDP: growth slows for 2 or more quarters Demand for products and services is very weak; GDP falls rapidly Demand increases; GDP begins to rise Possible actions of businesses Profits strong as is production Companies hiring & expanding (Macy’s may open more stores) Businesses decrease production as demand decre ases; profits suffer Businesses may strategize on ways to stimulate demand for goods & services Business failures and closings increase; companies make changes (such as moving employees from full time to part time to decrease hours and reduce benefits) just to stay open Businesses begin rehiring and increasing production; companies may again begin recruiting efforts at colleges PROSPERITY RECESSION RECOVERY DEPRESSION

Over a three-year period, how has the 1 2 3 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 $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? Year two income increased as well as the cost of a gallon of milk during years two and three; but the income did not keep up with the rate of increases of the cost of a gallon of milk. Therefore the buying power for this income for years three was decreased.

Consumer Prices Inflation Causes of inflation Consumer Price Index (CPI) Deflation Causes of deflation During an inflation, the demand for products and services exceeds the supply, which may cause an increase in prices. During deflation, the prices of products and services are lowered, but people have less money for purchases.

What is the primary purpose of each? 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? 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). Higher interest rates for businesses usually mean higher business cost. How do interest rates impact businesses?