1. Introduction to Business © Thomson South-Western ChapterChapter Economic Activity 2-1 2-1Measuring Economic Activity 2-2 2-2Economic Conditions Change 2-3 2-3Other Measures of Business Activity 2

2. Introduction to Business © Thomson South-Western Chapter 2 Slide 2 LESSON 2-1 LESSON 2-1 Measuring Economic Activity Goals Define gross domestic product. Describe economic measures of labor. Identify economic indicators for consumer spending.

3. Introduction to Business © Thomson South-Western Chapter 2 Slide 3 Key Terms Gross Domestic Product (GDP) GDP per capita unemployment rate productivity personal income retail sales

4. Introduction to Business © Thomson South-Western Chapter 2 Slide 4 Measures of Economic Activity Gross Domestic Product Labor Activities Consumer Spending

5. Introduction to Business © Thomson South-Western Chapter 2 Slide 5 GROSS DOMESTIC PRODUCT (GDP) What is GDP? The total dollar value of all final goods and services produced in a country

6. Introduction to Business © Thomson South-Western Chapter 2 Slide 6 Four Components of GDP Consumer spending- for food, clothing, housing, and other Government spending- employees, supplies Business spending- buildings, equipment, inventory Exports minus imports

7. Introduction to Business © Thomson South-Western Chapter 2 Slide 7 GDP (cont.) What types of economic activities are not included in GDP? Intermediate goods such as steel and fabrics are not included How would one use GDP to compare with past levels of economic activity? GDP per capita or output per person

8. Introduction to Business © Thomson South-Western Chapter 2 Slide 8 Comparison of GDP in Selected Countries

9. Introduction to Business © Thomson South-Western Chapter 2 Slide 9 >> C H E C K P O I N T What types of economic activities are not included in GDP?

10. Introduction to Business © Thomson South-Western Chapter 2 Slide 10 LABOR ACTIVITIES Economic Measures of Labor Unemployment rate: the portion of people in the labor force who are not working- looking and willing to work Productivity: the production output in relation to a unit of output, such as a worker

11. Introduction to Business © Thomson South-Western Chapter 2 Slide 11 LABOR ACTIVITIES What are ways to increase productivity? Technology Efficient work methods Training of workers Skill of workers

12. Introduction to Business © Thomson South-Western Chapter 2 Slide 12 >> C H E C K P O I N T What are ways to increase productivity?

13. Introduction to Business © Thomson South-Western Chapter 2 Slide 13 CONSUMER SPENDING Personal Income: refers to salaries and wages as well as investment income and government payments to individuals Retail sales: sales of durable and nondurable goods bought by consumers

14. Introduction to Business © Thomson South-Western Chapter 2 Slide 14 >> C H E C K P O I N T What are the main sources of personal income?

15. Introduction to Business © Thomson South-Western Chapter 2 Slide 15 LESSON 2-2 LESSON 2-2 Economic Conditions Change Goals Describe the four phases of the business cycle. Explain causes of inflation and deflation. Identify the importance of interest rates.

16. Introduction to Business © Thomson South-Western Chapter 2 Slide 16 Key Terms business cycle prosperity recession depression recovery inflation price index deflation

17. Introduction to Business © Thomson South-Western Chapter 2 Slide 17 THE BUSINESS CYCLE Prosperity: unemployment is low, business produce in record numbers, wages are good, and GDP increases Recession: demand begins to decrease, business lower production, unemployment begins to rise, and GDP slows for two or more quarters

18. Introduction to Business © Thomson South-Western Chapter 2 Slide 18 THE BUSINESS CYCLE Depression: prolonged period of high unemployment, weak consumer sales, and business failures Recovery: Unemployment begins to decrease, demand increases, GDP begins to rise again

19. Introduction to Business © Thomson South-Western Chapter 2 Slide 19 >> C H E C K P O I N T What are the four phases of the business cycle?

20. Introduction to Business © Thomson South-Western Chapter 2 Slide 20 CONSUMER PRICES Inflation: An increase in the general level of prices; the buying power decreases (mild is 2% or 3% per year) Causes of inflation: demand is greater than supply Price Index: a number that compares prices in one year with some earlier base year

21. Introduction to Business © Thomson South-Western Chapter 2 Slide 21 CONSUMER PRICES Deflation: means a decrease in the general level of prices Causes of deflation: recession or depression

22. Introduction to Business © Thomson South-Western Chapter 2 Slide 22 >> C H E C K P O I N T What are the main causes of inflation?

23. Introduction to Business © Thomson South-Western Chapter 2 Slide 23 INTEREST RATES Types of interest rates Changing interest rates

24. Introduction to Business © Thomson South-Western Chapter 2 Slide 24 Types of Interest Rates PRIME RATE: rate banks make available to their best business customers, such as large corporations DISCOUNT RATE: rate financial institutions are charged to borrow funds from the Federal Reserve

25. Introduction to Business © Thomson South-Western Chapter 2 Slide 25 Types of Interest Rates T-BILL RATE: the yield on short term U.S. government debt obligations TREASUREY BOND RATE: the yield on long-term U.S. government debt MORTGAGE RATE: the amount individuals pay to borrow for the purchase of a new home

26. Introduction to Business © Thomson South-Western Chapter 2 Slide 26 Types of Interest Rates CORPORATE BOND RATE: the cost of borrowing for large U.S. corporations CERTIFICATE OF DEPOSIT RATE: the rate for six-month time deposits at savings institutions

27. Introduction to Business © Thomson South-Western Chapter 2 Slide 27 >> C H E C K P O I N T How do interest rates affect business activities in our economy?

28. Introduction to Business © Thomson South-Western Chapter 2 Slide 28 LESSON 2-3 LESSON 2-3 Other Measures of Business Activity Goals Discuss investment activities that promote economic growth. Explain borrowing activities by government, business, and consumers. Describe future concerns of economic growth.

29. Introduction to Business © Thomson South-Western Chapter 2 Slide 29 Key Terms capital project stock bond budget surplus budget deficit national debt

30. Introduction to Business © Thomson South-Western Chapter 2 Slide 30 Investment Activities Why do people save? To invest for future purchases Why do businesses save? To invest for future purchases Capital projects: spending by businesses for items such as land, buildings, equipment, and new products

31. Introduction to Business © Thomson South-Western Chapter 2 Slide 31 INVESTMENT ACTIVITIES Personal savings Companies use money you save low savings can cause concern for the future The stock market (ownership) The bond market (debt)

32. Introduction to Business © Thomson South-Western Chapter 2 Slide 32 >> C H E C K P O I N T Name some examples of capital projects.

33. Introduction to Business © Thomson South-Western Chapter 2 Slide 33 BORROWING Government debt- uses borrowing to finance certain projects Budget surplus- government spends less than it takes in Budget deficit- government spends more than it takes in National Debt- the total amount owed by the federal government

34. Introduction to Business © Thomson South-Western Chapter 2 Slide 34 BORROWING Business debt- efficient use of borrowing can be helpful to companies Consumer debt- careful use can be important for economic growth and convenient

35. Introduction to Business © Thomson South-Western Chapter 2 Slide 35 >> C H E C K P O I N T What is the cause of a budget deficit?

36. Introduction to Business © Thomson South-Western Chapter 2 Slide 36 FUTURE ECONOMIC CHALLENGES Limited access to health care Need for proper housing for many people Traffic and crime Unemployment

37. Introduction to Business © Thomson South-Western Chapter 2 Slide 37 >> C H E C K P O I N T What are future economic concerns for a country’s economy?