Intro Ch. 2 Economic Activity

Ch. 2-1 Measuring Economic Activity GDP- Gross Domestic Product- The total dollar value of all goods and services produced in a country during one year. GDP- Gross Domestic Product- The total dollar value of all goods and services produced in a country during one year. Components of GDP Components of GDP –Consumer spending for food, clothing, housing, etc. –Business spending for buildings, equipment, etc. –Gov’t spending to pay employees and buy supplies –The exports of a country less the imports into the country.

GDP per capita- The total output per person. Total GDP divided by the population of the country. GDP per capita- The total output per person. Total GDP divided by the population of the country. And increase in GDP means that the economy is growing. And increase in GDP means that the economy is growing. Unemployment- The portion of people in the labor force who are not working. Unemployment- The portion of people in the labor force who are not working. –Must be looking for work and unable to find a job in order to be considered unemployed.

Productivity- The production output in relation to a unit of input. Productivity- The production output in relation to a unit of input. Personal Income- Salaries and wages a well as investment income and government payments to individuals. Personal Income- Salaries and wages a well as investment income and government payments to individuals. Retail Sales- Sales of durable and nondurable goods bought by consumers. Retail Sales- Sales of durable and nondurable goods bought by consumers.

Ch. 2-2 Economic Conditions Change Business cycle- Business cycle- –Prosperity –Recession –Depression –Recovery Prosperity- Prosperity- –Unemployment is down –GDP is up –Demand is up –Productivity is up

Recession- Period in which demand decreases, production decreases, GDP slows, unemployment grows in 2 or more quarters of the calendar year. Recession- Period in which demand decreases, production decreases, GDP slows, unemployment grows in 2 or more quarters of the calendar year. Depression- Marked by a prolonged period of high unemployment, weak consumer sales, and business failures. Depression- Marked by a prolonged period of high unemployment, weak consumer sales, and business failures. Recovery- Unemployment drops, demand increases, GDP rises, productivity rises. Recovery- Unemployment drops, demand increases, GDP rises, productivity rises.

Inflation- An increase in the general level of prices. Inflation- An increase in the general level of prices. –The buying power decreases because the value of the dollar decreases.  Demand is greater than the supply  Prices of goods and services increase at a greater level than wages –Inflation isn’t always a bad thing. 2-3% inflation during a year can stimulate the economy. Wages go up, unemployment stays low. CPI- Consumer Price Index- Compares prices in one year with prices in some earlier base year in order to calculate inflation. CPI- Consumer Price Index- Compares prices in one year with prices in some earlier base year in order to calculate inflation.

Deflation- Decrease in the general level of prices. Deflation- Decrease in the general level of prices. –Usually occurs in periods of recession and depression. –Prices of products are lower, but people have less money to spend.

Ch. 2-3 Other Measures of Business Activity Capital spending- Money spent by a business for an item that will be used over a long period. Capital spending- Money spent by a business for an item that will be used over a long period. Capital Project- Spending by businesses for items such as land, building, equipment, and new products. Capital Project- Spending by businesses for items such as land, building, equipment, and new products.

Stock- Represents ownership in a corporation Stock- Represents ownership in a corporation Bond- Represents debt of an organization Bond- Represents debt of an organization Budget Surplus- When a government spends less than it takes in. Budget Surplus- When a government spends less than it takes in. Budget Deficit- When a government spends more than it takes in. Budget Deficit- When a government spends more than it takes in. National Debt- The total amount owed by the federal government National Debt- The total amount owed by the federal government

Business Debt- Loans, bonds, and mortgages are common borrowing methods used by businesses. Business Debt- Loans, bonds, and mortgages are common borrowing methods used by businesses. –Businesses must be wise in the amount of debt that they incur. Business debt can be fine, as long as plenty of research is done beforehand. –Consumer Debt- Credit cards, car loans, mortgages, etc. are common ways that consumers get into debt. Like with businesses, debt in moderation isn’t always a terrible thing. However, if a consumer isn’t responsible, debt can ruin their life.