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) GDP per capita
unemployment rate
productivity
personal income
retail sales

4. 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 and to buy supplies and other goods/services
The exports of a country less the imports into the country
Only final goods are counted for GDP
When GPD increases from year to year=growing economy

5. GROSS DOMESTIC PRODUCT (GDP)
Comparing GDP
Total goods and services produced
GDP per capita
Total GDP/total population
That makes it the best measurement of a country's standard of living. It tells you how prosperous a country feels to each of its citizens.

6. COMPARISON OF GDP IN SELECTED COUNTRIES

7. COMPARING GROSS DOMESTIC PRODUCT

8. Checkpoint 
What types of economic activities are not included in GDP?
GDP only applies to reported final goods and services. (haircut, car, book, lawn service)
Money earned for goods or services that are not reported would not be included. (under the table)
Goods and services used in the manufacture of other products are only counted once—in the final product. (finished house, not materials used)

9. LABOR ACTIVITIES Employment People over 16 able or seeking work
Unemployment rate
Can work, but unable to find a job
Low unemployment rate is better
Productivity-production output in relation to a unit of input, such as a worker
If wages increase faster than gains in productivity, the cost of producing goods increases and prices rise
Workers earn more, but can buy less

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

11. CONSUMER SPENDING Personal income Retail sales
Salaries and wages as well as investment income and government payments to individuals
Retail sales
The sales of durable and nondurable goods by consumers
Are people afraid to spend money?

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

13. 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.

14. KEY TERMS business cycle prosperity recession depression recovery
inflation
price index
deflation

15. THE BUSINESS CYCLE
Movement of the country from one economic condition to the another and back again
Prosperity-low unemployment, high production, wages are good, GDP increases
Recession-economy slows down, demand begins to decrease, lower production, unemployment rises, GDP slows for 2+ quarters

16. THE BUSINESS CYCLE
Movement of the country from one economic condition to the another and back again
Depression-prolonged period of high unemployment, weak sales, and business failures, GDP falls rapidly,
Recovery-unemployment begins to decrease, demand for goods and services increase, consumers spend money, GDP begins to rise.
What do you think the US is in now, why?

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

18. CONSUMER PRICES Inflation-increase in the general level of prices
Causes of inflation-high demand, low supply
Mild inflation (2-3%) can stimulate economic growth
Measuring inflation
CPI-Consumer Price Index, compares prices from one year to the next
Deflation-decrease in general level of prices
Occurs in periods of recession and depression
Prices of products are lower, people have less $
What are some items that are cheaper now?

19. 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.
"I flew to U.S. to buy toilet paper"  What do you think the article/video clip is about? Video link

20. INTEREST RATES Interest-rent on money borrowed
Higher rates = higher business cost
People with bad credit pay higher interest rates
Types of interest rates
Prime rate-what banks use for best customers
Discount rate-what financial institutions are charged to borrow from Federal Reserve Bank
Mortgage rate-to purchase new home
Others include: T-Bill rate, treasury bond rate, corporate bond rate, certificate of deposit
Changing interest rates-change daily
Supply and demand of money is major influence on rate
When borrowing increases, interest rates likely to rise (happening now)

21. 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.

22. 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.

23. KEY TERMS capital project stock bond budget surplus budget deficit
national debt

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

25. 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.

26. BORROWING
Government debt
Business debt
Consumer debt

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

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

29. 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.