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

2. Objective 1.02 Understand economic conditions 2

3. Measuring economic activities Classifying economic conditions Topics 3

4. Measuring Economic Activities 4

5. Gross Domestic Product (GDP) GDP Major categories of GDP –Individual spending –Business spending –Government spending –Exports minus imports Name some products or services you have purchased or from which you have received benefits. Which component of GDP would you classify the product or service you named? 5

6. Major categories of GDP Individual spending includes food, clothing, housing, and other spending. Business spending includes buildings, equipment, and inventory items. Government spending includes paying employees and buying supplies and other goods and services. Exports minus imports includes goods and services that are sold to other countries. 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. 6

7. GDP per capita GDP per capita – output per person =_________GDP__________ Total Population 7

8. Labor Activities Employment –In measuring labor activities the unemployment rate includes the people of the labor force that are unemployed, are looking for work, willing to work, and unable to find work. –What is the national unemployment rate? –What is the state unemployment rate? 8

9. Labor Activities Productivity –What can help you be more productive in a computer lab? –Equipment, technology, training, and management can contribute to employees increasing their production?. 9

10. Consumer Spending Measurement of consumer spending: Personal Income includes the total wages and salaries plus investment income and government payments to individuals. 10 Retail Sales include the sales of goods and services purchased to indicate the spending patterns

11. Investment Activities The money used for capital projects comes from three main sources: –Personal savings –The stock market –The bond market 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. The savings rate of a country is an important factor for economic growth. What are some examples of investment activities? 11

12. Investment Activities 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. The savings rate of a country is an important factor for economic growth. 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. 12

13. Investment Activities Some examples of investment activities: Teri has saved over $3,000 in her money market account. Shane owns stock of an oil company. A bond passed in a city to fund the expansion of three schools. 13

14. Borrowing Activities … by –Government –Businesses 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. 14

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

16. Classification of Economic Conditions 16

17. Prosperity Employment rate and demand for products and services are high. Recession Unemployment rate is increasing and demand for products and services are lowering. Depression Unemployment rate is high and demand for products and services is lowering. Recovery Unemployment rate is lowering and demand for products and services is increasing. 17

18. Economic Conditions Change Deflation is a decrease in the general level of prices. How do lower prices impact deflation? During deflation, the prices of products and services are lowered, but people have less money for purchases. 18

19. Economic Conditions Change Inflation is an increase in the general level of prices. During an inflation, the demand for products and services exceeds the supply, which may cause an increase in prices. Inflation impacts buying power by decreasing the amount of power. 19

20. Economic Conditions Change CPI (Consumer Price Index) is a number that compares prices in one year with some earlier base year. How to calculate the CPI inflation rate of inflation Change in price index Inflation rate = –––––––––––––––––– X 100 Initial price index 20

21. Economic Conditions Change Example: 1. Interest rate = 20%, 2. Base price = $2.49 3. New Price = $2.99 4. Change in price index = $.50 5. Initial price = $2.49 21

22. Year 123 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 n/a $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? 22

23. Interest rates represent the cost of borrowing money. Higher interest rates for businesses usually mean higher business cost. When borrowing increases, interest rates are likely to rise. Economic Conditions Change 23