1. Measuring economic activity
1.02 ~ Economic activities and conditions

2. GROSS DOMESTIC PRODUCT (GDP)
The total dollar value of all final goods and services produced in a country during one year.
Chapter 2

3. Components of GDP
Consumer spending for food, clothing, housing, and other spending
Business spending for buildings, equipment, and inventory items
Government spending to pay employees and to buy supplies and other goods and services
The EXPORTS of a country LESS the IMPORTS into a country.
Chapter 2

4. NOT Included in GDP Value of the work you do for yourself
CHAPTER 2
5/20/2019
NOT Included in GDP
Value of the work you do for yourself
Intermediate goods used in manufacturing, such as steel and fabrics.
If GDP increases from year to year, this usually signals that an economy is growing and is healthy.
Chapter 2
ITB

5. GDP per capita GDP per capita = GDP ÷ Total Population
output per person
= GDP ÷ Total Population
Increase in GDP per capita means economy is growing
Decrease in GDP per capita may mean economy is having trouble

6. LABOR ACTIVITIES
The workers of a country contribute to an economy in several ways:
Create needed goods and services
Wages received are spent to create demand for various items
Chapter 2

7. Labor Activities ~ Employment
Labor force
consists of all people above age 16 who are actively working or seeking employment.
Students, retired people, and others who cannot or do not wish to work are not part of the labor force.
Unemployment rate
Portion of people in the labor force who are not working (must be looking for work and able and willing to work)
Main cause: reduced demand for goods and services
As of July 2011, US Unemployment Rate = 9.1% (Bureau of Labor Statistics)
Chapter 2

8. Labor activities ~ Productivity
A vital source of economic growth is an increase in output per worker.
Productivity
the production output in relation to a unit of input.
Can be increased by:
Improvements in capital resources (equipment and technology)
Worker training
Management techniques
Chapter 2

9. CONSUMER SPENDING Personal income
The money you earn and spend is one of the most important factors for economic growth.
Personal income
The salaries and wages as well as investment income and government payments to individuals.
Chapter 2

10. CONSUMER SPENDING
Retail sales
The sales of durable and nondurable goods bought by consumers.
Main items measured include:
Automobiles, Building Materials, Furniture, Gasoline, Clothing
Purchases from Restaurants, Department Stores, Food Stores, Drug Stores
Measured on a monthly basis by the U.S. Department of Commerce
Chapter 2

11. LESSON 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.
Chapter 2

12. THE BUSINESS CYCLE
Our economy has its ups and downs; seems to run in cycles
Good times Bad times Good times
This movement of the economy from one condition to another and then back again is called a Business Cycle.
Four phases
Chapter 2

13. Prosperity Recession Recovery Depression
Employment rate and demand for products and services are high.
Businesses continue making profits.
Recession
Unemployment rate is increasing and demand for products and services are lowering.
Businesses must strategize to stimulate demand for products & services.
Recovery
Unemployment rate is lowering and demand for products and services is increasing.
Business may increase human capital.
Depression
Unemployment rate is high and demand for products and services is lowering.
Businesses try to maintain profits or break even to avoid going out of business.

14. CONSUMER PRICES Inflation An increase in the general level of prices.
Demand for goods and services is greater than supply causing prices to rise faster than wages
Buying power of the dollar decreases
It now takes more money to buy the same amount of goods and services
Most harmful to people living on fixed incomes – retirees and disabled persons
Chapter 2

15. A decrease in the general level of prices
Deflation
A decrease in the general level of prices
Usually occurs during periods of recession and depression
Prices of products are lower, but people have less money to buy them
Significant deflation occurred in the U.S. during the Great Depression of the 1930s, when prices declined about 25%.
Chapter 2

16. LESSON 2-3 Other Measures of Business Activity
Goals
Discuss investment activities that promote economic growth.
Explain borrowing activities by government, business, and consumers.
Describe future concerns of economic growth.
Chapter 2

17. Investment Activities
Your time in school is an investment in your future
Companies buying buildings and equipment
Capital spending – money spent by a business for an item that will be used over a long period
Investing for the future can happen in several ways.
Chapter 2

18. Investment Activities, cont’d.
Capital projects involve spending by businesses for items such as land, buildings, equipment, and new products.
Comes from 3 main sources:
Personal savings
Stock investments
Bonds
Chapter 2

19. Personal Savings Factor for Economic Growth
Personal savings rate of the U.S. has been quite low in recent years – as little as one percent
Why does this raise concerns?
There is less money available for use by borrowers.
Factor for Economic Growth
Companies use the money you deposit to purchase expensive equipment or for creating new products.
In return, savers are paid interest for the use of this money.
Chapter 2

20. The Stock Market
Many people invest by becoming part owners of a corporation.
Investors are issued stock to represent this ownership.
Supply and demand are major influencers in stock prices
If a company has higher earnings, more people will want to buy its stock, which causes the value to increase
Chapter 2

21. The Bond Market
Another investment activity involves the sale of bonds.
A bond represents debt for an organization.
When you purchase a corporate or government bond, you have become a creditor.
In return, you are paid interest for the use of your money.
Chapter 2

22. Government Debt New schools Highways Public buildings Parks
Credit is often referred to as “Buy now, pay later”
Borrowing can have an important economic influence
People expect services from federal, state, and local governments.
New schools
Highways
Public buildings
Parks
Chapter 2

23. Government Debt, cont’d.
A government may spend less than it takes in – a budget surplus is the result.
May cause a reduction in taxes or increased spending
A government may spend more than it takes in – a budget deficit is the result.
May cause an increase in taxes or reduced spending
Chapter 2

24. Poor decision-making can lead to debt problems and business failure.
Economic decision-making plays a major role in how well companies (both large and small) will manage their debt.
Borrowing can be helpful when funds are used to expand sales and profits.
Poor decision-making can lead to debt problems and business failure.
Chapter 2

25. FUTURE ECONOMIC CHALLENGES
Limited access to health care
Need for proper housing for many people
Traffic and crime
Unemployment
Chapter 2