1. Understanding the Economy
Lesson 3-2
Understanding the Economy

2. Understanding the Economy
Objectives
List the goals of a healthy economy
Explain how an economy is measured
Analyze the four key phases of the business cycle
Marketing Essentials Chapter 3, Section 3.2

3. A healthy economy has three goals: Increase productivity
Goals of an Economy
A healthy economy has three goals:
Increase productivity
Decrease unemployment
Maintain stable prices
Marketing Essentials Chapter 3, Section 3.2

4. When Is an Economy Successful?
Economic Measurements six measurements used to determine the economic strength of a country
Six Measurements:
Labor productivity
Gross domestic product (GDP)
Gross national product (GNP)
Standard of living
Unemployment rate
Inflation rate
Marketing Essentials Chapter 3, Section 3.2

5. Assignment
Go online. Find the definition of each of the 6 Economic Measurements. Enter your definitions in the definition field of your note pages
Complete the CIA Country Comparison Activity (handout provided by your instructor)

6. 1. Labor Productivity:
Labor Productivity X the value of goods and services produced in a period of time, divided by the hours of labor used to produce the goods and services
- defined period of time, such as a week, month, or a year
Increased productivity by a business raises living standards, improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs.
An increase in output per hour that comes from higher productivity due to better equipment or methods is a good thing for the economy. An increase in output per worker that comes simply from working people longer and harder is not really an increase in productivity and is not beneficial to the economy.

7. 2. Gross Domestic Product
Gross domestic product (GDP) X is the total dollar value of goods and services produced by labor and property including spending, investing, and producing goods and services located within a country
The GDP is made up of:
Private investment
Government spending
Consumer spending
Healthcare
Largest Sector of the GDP?

8. 3. Gross National Product
Gross national product (GNP) X is the total dollar value of goods and services produced by a nation, including the goods and services produced abroad by U.S. citizens and companies
GNP, it is not where the production takes place but who is responsible for it
U.S. switched to using the GDP to measure its economy in 1991

9. Honda has a plant in the U.S.
Is the output of this plant included in the GNP or the GDP of the U.S.?
- GDP
Honda is owned by Japan, is this included in the GNP of the U.S.?
-no as it is not owned by the U.S.
Ford has a plant in Mexico
Are cars produced in Mexico included in the GDP or the GNP or both for the U.S.?
GNP

10. 4. Standard of Living
Standard of living is a measurement of the amount and quality of goods and services that a nation’s people have
Figure that reflects their quality of life based on the level of wealth, comfort, material goods and necessities available to a country’s people
In 2013, the top six countries for quality of living as: Norway, Australia, Switzerland, Netherlands, United States, and Germany Article
Marketing Essentials Chapter 3, Section 3.2

11. 5. Unemployment Rate
Unemployment Rate: the percentage of the total labor force that is unemployed but actively seeking employment and willing to work
Higher unemployment = greater chance of economic slowdown
Lower the rate = greater chances of economic expansion

12. Inflation
Inflation X refers to a period of rising prices on goods & services
Play video:

13. Inflation
From the video, answer the following questions in your notes:
What Causes Inflation?
When a country prints more money than what is justified by their wealth
What happens to the value of the dollar when this occurs?
It goes down
What is the target amount of inflation increase by banks?
2 %– 3 %

14. Inflation Low inflation rate (1 - 5 percent)
shows that an economy is stable
Double-digit inflation rate
devastates an economy
country’s money loses its value
During high inflation:
Prices increase and buying power goes down
People on fixed incomes especially hurt (elderly)
To combat inflation: governments raise interest rates to discourage borrowing money and slow economic growth

15. The Business Cycle
The cycle of economic growth and decline is called the business cycle
Business cycle X Recurring changes in economic activity, such as the expansion (growth) and contraction (slow down/decline) of an economy
Consists of four Stages:
Expansion
Recession
Trough
Recovery

16. Expansion Expansion X is a time when the economy is flourishing
Characterized by:
Low unemployment
High output of goods and services
High consumer spending
Good time to open new businesses
Will peak at the end and a recession period begins
Expansion

17. Recession
Recession X is a period of economic slowdown that lasts for at least six months.
Characterized by:
Reduced workforces and higher unemployment
R&D cut back, expansion on hold
Lower consumer spending
Low production of goods and services
Expansion

18. Depression A depression X is a period of prolonged recession
Characterized by:
Businesses shut down
Impossible to find jobs
Unemployment very high
Consumer spending is very low
Production of goods and services is down significantly

19. Trough
TroughX when the economy reaches its lowest point in a recession, then begins to rise
Expansion

20. Increased consumer spending Moderate expansion of businesses
The Business Cycle
recovery
A period of renewed economic growth following a recession or depression.
Recovery X is the term used to signify a period of renewed economic growth following a recession or depression. This time is characterized by:
Increasing GDP
Increasing Sales
Reduced unemployment
Increased consumer spending
Moderate expansion of businesses
Marketing Essentials Chapter 3, Section 3.2

21. The business cycle can be affected by the actions of: Businesses
Consumers
Government
These things are, in turn, affected by the business cycle
Marketing Essentials Chapter 3, Section 3.2

22. Understanding the Economy
Section 3.2
Identifying Economic Measurements

23. Understanding the Economy
Study Organizer
Use the chart like this one and use it to take notes about economic measurements.
Marketing Essentials Chapter 3, Section 3.2

24. CHAPTER 1 REVIEW
SECTION 3.2 REVIEW