1. 2 Economic Activity 2-1 Measuring Economic Activity
C H A P T E R 2
Economic Activity
2-1 Measuring Economic Activity
2-2 Economic Conditions Change
2-3 Other Measures of Business Activity

2. 2-1 Measuring Economic Activity
Goal 1 Define gross domestic product.
Goal 2 Describe economic measures of labor.
Goal 3 Identify economic indicators for consumer spending.

3. KEY TERMS
Gross Domestic Product (GDP) – Total value of all final goods and services produced in a country during one year.
GDP per capita – Output per person
Unemployment rate – The portion of people in the labor force who are not working.
Productivity – The production output in relation to a unit of in put.

4. KEY TERMS
Personal income – the salaries, wages, investment income, and government payments to individuals.
Retail sales – The sales of durable and nondurable goods bought by consumers.

5. GROSS DOMESTIC PRODUCT (GDP)
Components of GDP
Consumer spending for food, clothing, housing, and other aspects.
Business spending for buildings, equipment, and inventory items
Government spending to pay employees & to buy supplies and other goods and services.
The exports & imports relationship of a country
Comparing GDP

6. GDP Explained

7. COMPARISON OF GDP IN SELECTED COUNTRIES

8. COMPARING GROSS DOMESTIC PRODUCT

9. Checkpoint 
What types of economic activities are not included in GDP?
GDP only applies to reported final goods and services.
Money earned for goods or services that are not reported would not be included.
Goods and services used in the manufacture of other products are only counted once—in the final product.

10. LABOR ACTIVITIES
Employment
Productivity

11. Productivity Explained

12. Checkpoint  How can productivity be increased?
Productivity can be increased by improvements in capital resources (equipment and technology), worker training, and management techniques.

13. CONSUMER SPENDING
Personal income
Retail sales

14. Checkpoint  What are the main sources of personal income?
Sources of personal income include wages, salaries, investment income, and government payments.

15. Pop Quiz
1. Which of the following would not be included in GDP? a. Exports to other countries b. Purchases of computers by government c. Automobile purchased d. Dinner preparation for your family 2. Productivity would likely increase as a result of a. higher taxes b. expanded production technology c. decreased training programs d. lower interest rates 3. Retail sales include a. taxes collected b. companies buying new equipment c. borrowing by business d. school supplies bought by students

16. 2-2 Economic Conditions Change
Goal 1 Describe the four phases of the business cycle.
Goal 2 Explain causes of inflation and deflation.
Goal 3 Identify the importance of interest rates.

17. KEY TERMS
Business cycle – The movement of the economy from one condition to another and back again.
Prosperity – A period in which most people who want to work are working
Recession – A period in which demand begins to decrease, businesses lower production, unemployment rises, and GDP growth slows for two or more quarters of a calendar year.

18. KEY TERMS
Depression – a phase marked by a prolonged period of high unemployment, weak consumer sales, and business failures.
Recovery – The phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again.
Inflation – An increase in the general level of prices.
Price index – A number that compares prices in one year with prices in some earlier base year.

19. KEY TERMS
Deflation – A decrease in the general level of prices.

20. THE BUSINESS CYCLE
Prosperity
Recession
Depression
Recovery

21. Business Cycle Explained

22. Checkpoint  What are the four phases of the business cycle?
Prosperity
Recession
Depression
Recovery

23. CONSUMER PRICES Inflation Causes of inflation Measuring inflation
Deflation

24. Inflation vs Deflation

25. Checkpoint  What are the main causes of inflation?
Inflation is an increase in the general level of prices that occurs when the demand for goods and services is greater than supply.

26. INTEREST RATES
Types of interest rates
Changing interest rates

27. Interest Rates Explained

28. Checkpoint 
How do interest rates affect business activities in our economy?
Interest rates can encourage or discourage borrowing and spending.
Lower interest rates allow consumers greater spending power, which increases demand, productivity, and employment.
Businesses often pass on the cost of higher interest rates to consumers.

29. 2-3 Other Measures of Business Activity
Goal 1 Discuss investment activities that promote economic growth.
Goal 2 Explain borrowing activities by government, business, and consumers.
Goal 3 Describe future concerns of economic growth.

30. KEY TERMS
capital project – Spending by business for items such as land, buildings, equipment, and new products
Stock – Ownership in a corporation (aka equity)
Bond –Debt for an organization
budget surplus – Government spends less than it takes in
budget deficit
national debt

31. KEY TERMS budget deficit – Government spends more than it takes in
national debt – total amount owed by the federal government

32. INVESTMENT ACTIVITIES
Personal savings
The stock market
The bond market

33. Checkpoint  Name some examples of capital projects.
Capital projects include the purchase of any item a business will use over an extended period of time such as land, buildings, and equipment.

34. BORROWING
Government debt
Business debt
Consumer debt

35. Checkpoint  What is the cause of a budget deficit?
A budget deficit occurs when a government or organization spends more than it takes in.

36. FUTURE ECONOMIC CHALLENGES
Emerging markets
Weak economies
Consumer preferences and behavior

37. Checkpoint  What economic challenges do countries face in the future?
Future economic concerns for any country include the ability to increase its output and provide a means for its citizens to meet the basic needs of food and shelter, adequate health care, education, transportation, employment, and safety.