1. Economic Measurements
Chapter 2

2. Key Terms 2.1 Gross Domestic Product (GDP) GDP per capita
Unemployment rate
Productivity
Personal income
Retail sales
Read FOCUS ON REAL LIFE together

3. What Is Economic Growth ?
A steady increase in production of goods and services
High rate of employment and low rate of business failures = a good economy
Labor and consumer spending help economic growth
Use GDP to measure economic growth
7% of the world’s land and less than 5% of the worlds population, yet our output accounts for more than 20% of all goods/services produced in the world

4. Gross Domestic Product (GDP) $12.4 trillion
Total dollar value of all goods and services produced in a country in 1yr
4 categories of economic activity
Spending on food, clothing, and housing
business spending on buildings, equipment, and inventory
gov’t spending on paying employees and buying supplies
The amount of exports of a country minus the imports
GDP should INCREASE year to year
Increase in GDP is a sign of a good economy
However, you should account for price of production changes each year

5. What is NOT included in GDP
Only final goods are counted when we measure GDP (cars) —no materials
The value of the work you do yourself is not included
Cutting your own lawn, building your own storage shed

6. GDP Per Capita
The GDP of a country divided by its population; per person
GDP ÷ total population
Increase in GDP per capita = economic growth
Decrease = economic trouble

7. Labor Productivity Employment Over 145 million people work (over 16)
Students, retired people, and others who cannot or choose not to work are not considered part of the labor force
Unemployment rate is a concern
Portion of people in labor force NOT working
Main cause of is a reduced demand for the goods/services that actual workers make

8. Labor Productivity (cont)
Productivity is measured in terms of the number of items produced per worker
Productivity increase – More output from the same number of workers--which helps economic growth

9. Labor productivity (cont)
If salaries increase faster than items are produced, prices of goods/services also increase
So even though you make more money, you can’t live any better because costs go up for groceries, gas, bills
People always want to produce items quickly
High productivity makes it possible to reduce the number of hours in a workweek
Go home early!!

10. Consumer Spending
The money you earn and spend is #1 factor in economic growth
Personal Income
salaries/wages, government payments
Retail Sales
Sales of all goods bought by consumers
Can show consumer spending patterns
Increase in sales = economic growth

11. 2.1 Assessment Quiz

12. 2.2 Key Terms Business cycle Prosperity Recession Depression Recovery
Inflation
Price index
Deflation

13. The Business Cycle Continuous ups and downs of GDP
How the economy moves from one condition, to another, and back again
4 phases of the business cycle:
Prosperity
Recession
Depression
Recovery

15. Prosperity LOTS of jobs
Businesses produce goods/services in record numbers
Wages are good and GDP increases
Demand for goods/services is high
Peak (high point) of business cycle

16. Recession Economy slows down Demand begins to decrease
businesses lower production of goods
unemployment rises
May not be serious, but trouble maybe
Causes the ripple effect – trouble for workers in a related business (Automobiles: sales, parts, service)
.S. recession that lasted from July 1990 through March 1991, the economy showed the lowest growth rate since the Great Depression
it was responsible for the loss of 1.9 million jobs through early 1992.

17. Depression A long period of GDP falls rapidly
high unemployment
weak sales of goods/services
business failures
GDP falls rapidly
Great Depression
25% of labor force was unemployed
People could not afford basic needs

18. Recovery Phase where unemployment begins to decrease
demand for goods/services increases
GDP begins to rise
Usually happens slowly

19. Inflation Inflation- increase in the general level of prices over time
The buying power of the dollar decreases
EX: If prices increased 5% in the last year, items that cost $100 last year now cost $105. It now takes more money to buy the same amount of products
GAS!!

20. Causes of Inflation Demand for goods is greater than the supply
Workers must make more money but must keep the same standard of living because other prices increase
Most harmful to people on fixed incomes—not able to afford as much

21. Measuring Inflation How can you tell how fast prices rise?
Consumer Price Index
A number that compares numbers from one year to earlier years

22. Deflation A decrease in the level of prices
Occurs during recession or depression periods to make things affordable
Prices are lower, but wages are lower
During Great Depression, prices dropped 25%
Groupon

23. Interest Rates
How much you have to pay to borrow money from a bank or credit card
Bad credit=HIGH interest rate 
The more people borrow, the higher the interest rates

24. 2.2 Assessment

25. 2.3 Vocab Capital projects Stock Bond Budget surplus Budget deficit
National debt

26. TYPES OF INVESTMENTS Capital Projects Stock Market Bond Market
Businesses spend money for more land, equipment, buildings or new products
Stock Market
A piece of ownership in a company
You can make/lose money depending on how good/bad company does
Bond Market
You “loaned” money to a company and they owe you money back + interest over time

27. GOVERNMENT BORROWING BUY NOW, PAY LATER
Government Debt
When government borrows money to pay for projects: schools, highways, public building, etc.
When government spends LESS than it makes, it is a Budget Surplus
When government spends MORE than it makes, it is a Budget Deficit
NATIONAL DEBT: total amount gov. owes

28. 2.3 Assessment
CHAPTER 2 ASSESSMENT / DECISION MAKING STRATEGIES