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

2. Objective 1.02 Understand economic conditions 2

3. Topics O Measuring economic activities O Classifying economic conditions 3

4. Measuring Economic Activities 4

5. Gross Domestic Product (GDP) O GDP O 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 5

6. GDP per capita GDP per capita – output per person =_________GDP__________ Total Population 6

7. Labor Activities O Employment O How is employment included in measuring labor activities? O Unemployment rate includes the people of the labor force that are unemployed, are looking for work, willing to work, and unable to find work. O Productivity O The quality of being productive. O Economics: The rate at which goods or services are produced especially output per unit of labor. 7

8. Consumer Spending Measurement of consumer spending: O Personal Income O includes the total wages and salaries plus investment income and government payments to individuals O Retail Sales O include the sales of goods and services purchased to indicate the spending patterns 8

9. 9 Investment Activities O The money used for capital projects comes from three main sources: O Personal savings O The stock market O The bond market

10. 10 How does each investment activity impact economic growth?  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. What are 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.

11. 11 Borrowing Activities … O Borrowing by: O Government O Businesses O How can government borrowing lead to a budget deficit? O 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. O How can using borrowed money wisely impact businesses? O Companies may borrow money to start up or expand. Using borrowed fund efficiently can result in an increase in sales and profits.

12. Measuring Economic Activities 12 GDP GDP Per capita Labor Activities Consumer Spending Investment Activities Borrowing Activities

13. Classification of Economic Conditions 13

14. 14 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.

15. Economic Conditions Change 15 O What is inflation? O an increase in the general level of prices. O What causes inflation? O During an inflation, the demand for products and services exceeds the supply, which may cause an increase in prices. O Inflation impacts buying power by decreasing the amount of power. O What is deflation? - a decrease in the general level of prices. O How do lower prices impact deflation? - During deflation, the prices of products and services are lowered, but people have less money for purchases.

16. Economic Conditions Change O What is Consumer Price Index (CPI)? O a number that compares prices in one year with some earlier base year. O How is CPI inflation rate calculate? Change in price index Inflation rate = –––––––––––––––– X 100 Initial price index 16

17. Year 123 Income Income percent change from year 1 $36,00 0 n/a $38,00 0 5.6% $21,00 0 -42% Gallon of milk cost Gallon of milk cost percent change from year 1 $2.49 n/a $2.99 20% $3.19 28% 17 Over a three-year period, how has the income been impacted by the cost of a gallon of milk?

18. What are interest rates? Interest rates represent the cost of borrowing money How do interest rates impact businesses? Higher interest rates for businesses usually mean higher business cost. When borrowing increases, interest rates are likely to rise. 18 Economic Conditions Change