1. Introduction to Business Chapter 3 Measuring Economic Performance

3. Economic Fluctuations The ups and downs of economic activity can be predicted through research of economic indicators and of history. How does a rollercoaster move?

4. The Business Cycle Four words you should remember about it Four words you should remember about it Expansion-Recovery Expansion-Recovery Peak-Prosperity Peak-Prosperity Contraction-Recession Contraction-Recession Trough-Depression Trough-Depression

5. Expansion-Prosperity A rise in business activity A rise in business activity More jobs are available More jobs are available More money is “moving” in the market More money is “moving” in the market The Unemployment Rate is low. The Unemployment Rate is low.

6. Peak The highest level of economic activity in a cycle. New businesses open. Production of goods and services are high. Unemployment Rate is low.

7. Contraction-Recession Is a noticeable drop in the level of business activity. Is a noticeable drop in the level of business activity. Indicate a slow down in the growth of the economy. Indicate a slow down in the growth of the economy. Stable or falling prices of goods and services. Stable or falling prices of goods and services. Unemployment rate increases. Unemployment rate increases. *The economy is approaching a recession.*

8. Trough-Depression The lowest level of business activity Depression is the worst scenario of a trough. The unemployment rate is high. What is a High Unemployment Rate?

9. Business Cycle Definitions Peak--Highest level of economic activity in a cycle. Peak--Highest level of economic activity in a cycle. Expansion—Rise in business activity. Expansion—Rise in business activity. Contraction—Drop in business activity, slowdown in the growth of the economy. Contraction—Drop in business activity, slowdown in the growth of the economy. Trough—Lowest level of business activity. Trough—Lowest level of business activity.

10. Economic Conditions The terms recession and depression are often used to describe long trends of an economic condition. The terms recession and depression are often used to describe long trends of an economic condition. Recession Recession Depression Depression Recovery Recovery Prosperity Prosperity

11. Economic Conditions Recession- Period of sever economic decline. Spending decreases, demand for goods and services fall and unemployment rises. Recession- Period of sever economic decline. Spending decreases, demand for goods and services fall and unemployment rises. Depression- Very sever recession that last years. Depression- Very sever recession that last years. Recovery- Economic growth or expansion following a recession or depression. Recovery- Economic growth or expansion following a recession or depression.

12. Measuring Economic Activity No one can predict with certainty what the economy will actually do. Economists, business people, and the government are all interested in forecasting economic conditions. They look for clues to help them make informed predictions. (educated guesses) These clues are called economic indicators. There are about 250 economic indicators. We will study the top three. No one can predict with certainty what the economy will actually do. Economists, business people, and the government are all interested in forecasting economic conditions. They look for clues to help them make informed predictions. (educated guesses) These clues are called economic indicators. There are about 250 economic indicators. We will study the top three.

13. Economic Indicators Important data or statistics that measure economic activity and business cycles. The three most important economic indicators are: 1. GDP (Gross Domestic Product) 2. Inflation 3. Unemployment

14. GDP Gross Domestic Product Gross Domestic Product Is the dollar value of all final goods and services produced in the nation in a single year Is the dollar value of all final goods and services produced in the nation in a single year Consumer goods and services Consumer goods and services Business goods and services Business goods and services Government goods and services Government goods and services Goods and services sold to other countries Goods and services sold to other countries The GDP helps to measure what the U.S. Standard of Living is. The GDP helps to measure what the U.S. Standard of Living is.

16. Inflation Considered the most important economic indicator. Considered the most important economic indicator. Inflation is the prolonged rise in prices Inflation is the prolonged rise in prices The inflation rate is the percentage of how much goods and services cost on the average from one year to the next. The inflation rate is the percentage of how much goods and services cost on the average from one year to the next. A Healthy Inflation rate is four percent a year. A Healthy Inflation rate is four percent a year.

17. Unemployment The number of people out of work, and who are actively looking for a job during a period of time. The number of people out of work, and who are actively looking for a job during a period of time. Do you know what the unemployment rate is for the U.S.? Do you know what the unemployment rate is for the U.S.? Do you know what the unemployment rate is Illinois? Do you know what the unemployment rate is Illinois?

18. Year Ann Avg1948 3.8 1949 5.9 1950 5.3 1951 3.3 1952 3.0 1953 2.9 1954 5.5 1955 4.4 1956 4.1 1957 4.3 1958 6.8 19595.5 1959 5.5

19. 3.5-1970 4.9-1971 5.9-1972 5.9-1972 5.6-1973 5.6-1973 4.9- 1974 6.1 1975 1976 – 8.5 7.7 -1977 7.1 -1978 7.1 -1978 6.1 - 1979 6.1 - 1979 5.8 - 1980 5.8 - 1980

20. 7.11-981 7.61-982 7.61-982 9.71-983 9.71-983 9.6-1984 9.6-1984 7.5-1985 7.2-1986 7.0-1987 7.0-1987 6.2-1988 6.2-1988 5.5-1989 5.3-1990 5.3-1990

21. 4.2-2000 4.0-2001 4.7-2002 5.8-2003 6.0-2004 5.5-2005 5.1 5.6-1991 6.8-1992 7.5-1993 6.9-1994 6.11-995 5.6-1996 5.4-1997 4.9 -1998 4.5- 1999