1. Economic Activity CHAPTER 2 2-1 Measuring Economic Activity
2-2 Economic Conditions Change
2-3 Other Measures of Business Activity

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

3. Key Terms Gross Domestic Product (GDP) GDP per capita
Chapter 2
Key Terms
Gross Domestic Product (GDP)
GDP per capita
unemployment rate
productivity
personal income
retail sales

4. Components of GDP Consumer spending—food, clothing, housing, etc.
Chapter 2
Components of GDP
Consumer spending—food, clothing, housing, etc.
Business spending—buildings, equipment, inventory
Government spending—pay employees, buy supplies
Exports minus imports

5. Chapter 2
GDP Equation
G + B + C + (E-I)

6. Things NOT included in GDP
Chapter 2
Things NOT included in GDP
Value of the work you do for yourself ex. cutting your lawn, building a deck
Intermediate goods like steel and fabrics

7. GDP per capita Output per person GDP/POPULATION = GDP PER CAPITA
Chapter 2
GDP per capita
Output per person
GDP/POPULATION = GDP PER CAPITA

8. Comparison of GDP in Selected Countries
Chapter 2
Source: CIA World Factbook
Comparison of GDP in Selected Countries

9. Chapter 2
Checkpoint >>
What types of economic activities are not included in GDP?
Answer
GDP only applies to reported final goods and services.
Intermediate goods—steel and fabric, etc. are not included
The value of work you do for yourself is not included

10. Chapter 2
LABOR ACTIVITIES
Employment
Productivity

11. Chapter 2
Employment
Labor force—all people 16+ who are actively working or seeking work
Does not include—students, retirees, people who can’t or don’t want to work
Unemployed=looking for and willing to work but can’t find a job
Unemployment rate

12. National Unemployment Rate
Chapter 2
National Unemployment Rate
National unemployment rate= # of people unemployed/# of people in the labor force
Labor force= non-institutionalized individuals who are working and on a payroll + adult civilians not working but actively seeking work (E + U)

13. Productivity How much is produced per worker Increase productivity by—
Chapter 2
Productivity
How much is produced per worker
Increase productivity by—
Improve capital resources
Worker training
Better management techniques

14. Chapter 2
Productivity

15. Checkpoint >> How can productivity be increased? Answer
Chapter 2
Checkpoint >>
How can productivity be increased?
Answer
Productivity can be increased by improvements in capital resources (equipment and technology), worker training, and management techniques.

16. Chapter 2
CONSUMER SPENDING
Personal income
Retail sales

17. Personal Income Salaries and wages Investment income
Chapter 2
Personal Income
Salaries and wages
Investment income
Government payments to individuals
*These funds provide the foundation for buying needed goods and services.

18. Retail Sales Indicator of general consumer spending patterns
Chapter 2
Retail Sales
Indicator of general consumer spending patterns
Sales measured for
Automobiles
Building materials
Furniture
Gasoline
Clothing
Other purchases from restaurants & stores

19. Checkpoint >> What are the main sources of personal income?
Chapter 2
Checkpoint >>
What are the main sources of personal income?
Answer
Sources of personal income include wages, salaries, investment income, and government payments.

20. Economic Conditions Change
2-2
Economic Conditions Change
Goals
Describe the four phases of the business cycle.
Explain causes of inflation and deflation.
Identify the importance of interest rates.

21. Key Terms business cycle prosperity recession depression recovery
Chapter 2
Key Terms
business cycle
prosperity
recession
depression
recovery
inflation
price index
deflation

22. Chapter 2
THE BUSINESS CYCLE
Prosperity
Recession
Depression
Recovery

23. Prosperity People are happy People are working Wages are good
Chapter 2
Prosperity
People are happy
People are working
Wages are good
Businesses are producing many goods and services
People are buying
GDP increases

24. Recession People are less happy Demand starts to decrease
Chapter 2
Recession
People are less happy
Demand starts to decrease
Businesses produce less
Unemployment starts to rise
GDP growth slows

25. Depression People are not happy High unemployment Weak demand
Chapter 2
Depression
People are not happy
High unemployment
Weak demand
Business failures
GDP falls

26. Recovery People are hopeful Unemployment starts to decrease
Chapter 2
Recovery
People are hopeful
Unemployment starts to decrease
Demand increases
GDP starts to rise
Businesses producing again

27. Checkpoint >> What are the four phases of the business cycle?
Chapter 2
Checkpoint >>
What are the four phases of the business cycle?
Answer
The four phases of the business cycle are prosperity, recession, depression, and recovery.

28. CONSUMER PRICES Inflation Causes of inflation Measuring inflation
Chapter 2
CONSUMER PRICES
Inflation
Causes of inflation
Measuring inflation
Deflation

29. INFLATION Increase in the general level of prices
Chapter 2
INFLATION
Increase in the general level of prices
Buying power of the dollar decreases (takes more money to buy the SAME goods and services)
Impacts people living on fixed incomes

30. CAUSES OF INFLATION Demand > Supply (Demand-pull)
Chapter 2
CAUSES OF INFLATION
Demand > Supply (Demand-pull)
Rising production costs (Cost-push)

31. Chapter 2
MEASURING INFLATION
Consumer Price Index (CPI)—number that compares prices in one year with prices in some earlier base year
Mild inflation (2-3%) can stimulate the economy
CPI FAQ

32. DEFLATION Decrease in the general level of prices
Chapter 2
DEFLATION
Decrease in the general level of prices
Usually occurs during a recession or depression
Prices of products are lower but people have less money to buy them

33. Checkpoint >> What are the main causes of inflation? Answer
Chapter 2
Checkpoint >>
What are the main causes of inflation?
Answer
Inflation is an increase in the general level of prices that occurs when the demand for goods and services is greater than supply. [demand pull]
Cost push—when the costs of production rise