Essential Standard 1.00 Understand the role of business in the global economy. 1

Objective 1.02 Understand economic conditions 2

Measuring economic activities Classifying economic conditions Topics 3

Measuring Economic Activities wMc 4

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 GDPGrowth 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 5

GDP per capita GDP per capita = output per person =_________GDP__________ Total Population of the Country 6

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 Gains in Productivity Result in Record Output –What can contribute to employees increasing their production? Equipment, technology, training, management 7

Activity 1 – POBF 1.02 Complete the Labor Activity Handout 8

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% 9

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) 10

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?? 11

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. 12

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. 13

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 DebtU.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. 14

Measuring Economic Activities GDP GDP Per capita Labor Activities Consumer Spending Investment Activities Borrowing Activities 15

Classification of Economic Conditions 16

PROSPERITY RECESSION DEPRESSION RECOVERY Situation PROSPERITYRECESSIONDEPRESSIONRECOVERY 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 decreases; 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

Year 123 Income Income percent change from year 1 $36,000 n/a $38, % $21, % Gallon of milk cost Gallon of milk cost percent change from year 1 $2.49 n/a $ % $ % Over a three-year period, how has the income been impacted by the cost of a gallon of milk? 18

Consumer Prices Inflation - the demand for products and services exceeds the supply, which may cause an increase in prices Consumer Price Index (CPI) - A measure that examines the weighted average of prices of a basket of consumer goods and services Deflation - the prices of products and services are lowered, but people have less money for purchases 19

Consumer Price Index (CPI Change in price index Inflation rate = –––––––––––––––––– X 100 Initial price index 20

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? 21

Interest Rates Interest rates: the cost of borrowing money –Prime rate: the rate banks charge their best customers to borrow money (mostly large corporations) –Discount rate: the interest rate banks pay to borrow money from the Federal Reserve (govt) –T-bill rate: the yield (savings rate) earned by investors on short-term (13 week) debt (bonds) issued by the federal government 22

Interest Rates –Treasury Bond rate: the yield (savings rate) earned by investors on long term (20 year) debt )bonds) issued by the federal gov’t –Mortgage rate: Interest paid to the lender to borrow money for a home loan –Corporate bond rate: the yield (savings rate) earned by investors on debt issued by large corporations –Certificate of Deposit (CD) rate: the yield on savings earned by investors for depositing their money with banks for a specific time period 23

How do interest rates impact businesses? Interest rates for borrowing have a strong influence on businesses. Higher interest rates for loans and debt mean high expenses (costs) for businesses. Many times, businesses pass these increased costs on to consumers in the form of higher prices for goods and services. 24

Activity 3 – 1.03 Complete Economic activities and conditions crossword puzzle 25

Activity 4: Video How Economic Freedom Leads to Prosperity? ?p=video_economic_freedom.html&l=3 26