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

2. Goals 11. Define gross domestic product. 12. Describe economic measures of labor. 13. Identify economic indicators for consumer spending. 2 2-1

3.  Gross Domestic Product (GDP)  GDP per capita  unemployment rate  productivity  personal income  retail sales Chapter 23

4.  Components of GDP  Consumer spending  Business spending  Government spending  Exports minus imports of a country ▪ Only FINAL GOODS count  Comparing GDP  Output per person  GDP divided by the total population Chapter 24

5. 5 Comparison of GDP in Selected Countries Source: CIA World Factbook

6. Chapter 26 What types of economic activities are not included in GDP? Answer  GDP only applies to reported final goods and services.  Money earned for goods or services that are not reported would not be included.  Goods and services used in the manufacture of other products are only counted once—in the final product. Checkpoint >>

7.  Employment –  Labor force consists of all people above age 16 who are actively working or seeking work  Unemployment rate- portion of people in the labor force who are not working  Productivity – production output in relation to a unit of input OR  Output ÷ Input = PRODUCTIVITY  What can influence a country’s PRODUCTIVITY? Chapter 27

8. 8 What influences a country’s productivity? Answer Capital resources (equipment and technology) Worker training and Management techniques Safety/security Education level Political stability Productivity >>

9.  Personal income –  Salary or Wages  Investment income  Government payments  Retail sales –  Sales of durable and nondurable goods bought by consumers  Retail sales are an indicator of general consumer spending patterns in the economy  Main Items: ▪ Automobiles, building materials, furniture, gasoline, clothing, restaurant sales, department stores, food stores and drug stores. Chapter 29

10. 10 What are the main sources of personal income? Answer Sources of personal income include wages, salaries, investment income, and government payments. Checkpoint >>

11.  Chapter 2-1  Page 37 ▪ 1-3 and 4 or 5 Chapter 211

12. Goals 14. Describe the four phases of the business cycle. 15. Explain causes of inflation and deflation. 16. Identify the importance of interest rates. 12 2-2

13.  business cycle  prosperity  recession  depression Chapter 213  recovery  inflation  price index  deflation

14.  Prosperity  Recession  Depression  Recovery Chapter 214

15.  People who want to work are working.  Production of G&S hit record highs.  Wages are up.  Rate of GDP growth increases.  Demand for G&S is high.  Cannot last forever… why? Chapter 215

16.  Demand begins to decrease.  Businesses lower production.  Unemployment begins to rise.  GDP growth slows to 2 or more quarters of the year.  Severity varies. Chapter 216

17.  When recession grows and spread throughout the nation.  Prolonged unemployment  Weak sales due to low demand  Business failures  GDP falls rapidly Chapter 217

18.  Unemployment begins to decrease.  Demand begins to increase.  GDP begins to rise again.  Consumers regain confidence in their futures and begin spending again. Chapter 218

19. Chapter 219 What are the four phases of the business cycle? Answer The four phases of the business cycle are prosperity, recession, depression, and recovery. http://www.wgal.com/money/29191773/detail.html Checkpoint >>

20.  Inflation- 1950’s last 70 yrs Inflation 1950’slast 70 yrs  Sustained increase in the general level of prices for G&S  Buying power of the dollar decreases  Causes of inflation-  When demand is greater than supply  Wages may increase but at a much slower rate  If wages would go up faster than prices, businesses would need to hire fewer workers, which would worsen unemployment Chapter 220

21.  Measuring Inflation-  Rate of increase fluctuates and has throughout our nation’s history.  CPI (Consumer Price Index) ▪ Compares prices in one year with prices in some earlier base year ▪ Can be deceiving because it’s based on a group of selected items and may not reflect necessities such as food, gas, and health care. Chapter 221

22.  Deflation-  Opposite of inflation~ A sustained decrease in the general level of prices for G&S  Usually occurs during recessions and depressions  Prices are lower but consumers have less money to buy them.  Doesn’t include items such as computers whose prices have decrease drastically over the years…Why? Chapter 222

23.  Interest Rates-  Cost of money  Individuals, companies, and governments who borrow money are affected by interest rates  People with poor credit ratings pay more (higher interest rates) than people with good credit ratings… Why?  When borrowing increases, interest rates rise  Types of interest rates (continued on next slide) Chapter 223

24.  Types of Interest Rates  Prime rate- given to banks’ best customers  Discount rate- charges to banks by the FED  T-bill rate- yield on short- term US gov. obligations (ex. 5 year)  Treasury bond rate- yield on long-term US gov obligation (ex. 30 year)  Mortgage rate- interest on a home loan  Corporate bond rate- large US corporations’ cost to borrow  Certificate of deposit rate- rate for long-term deposits at savings institutions Chapter 224

25. ▪ Discount Rate Discount Rate ▪ http://money.cnn.com/2010/02/18/news/economy/discount.rate.fortune/index.htm http://money.cnn.com/2010/02/18/news/economy/discount.rate.fortune/index.htm ▪ Car Loan Rates Car Loan Rates ▪ Auto Rates Auto Rates ▪ http://www.bankrate.com/finance/auto/auto-loan-rates.aspx http://www.bankrate.com/finance/auto/auto-loan-rates.aspx ▪ Mortgage Rates (Adjustable Rate Mortgages vs. Fixed Rate Mortgages) Mortgage Rates ▪ http://mortgage-x.com/trends.htm http://mortgage-x.com/trends.htm ▪ Savings Account Interest Rate Savings Account Interest Rate ▪ CD Rates CD Rates ▪ http://www.bankrate.com/cd.aspx http://www.bankrate.com/cd.aspx ▪ http://www.ratestracker.com/historical-cd-rates/ http://www.ratestracker.com/historical-cd-rates/ ▪ Credit Card Rates Credit Card Rates ▪ http://www.indexcreditcards.com/credit-card-rates-monitor/ http://www.indexcreditcards.com/credit-card-rates-monitor/ Chapter 225

26. Chapter 226 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. Checkpoint >>

27. Chapter 227 How do interest rates affect business activities in our economy? Answer 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. Checkpoint >>

28.  Chapter 2-2  Page 42 ▪ 1-3, and choose 4 or 5 Chapter 228

29. Goals 17. Discuss investment activities that promote economic growth. 18. Explain borrowing activities by government, business, and consumers. 19. Describe future concerns of economic growth. 29 2-3

30.  Capital projects- spending by businesses for items such as land, buildings, equipment, and new products. This $ comes from three main sources:  Personal savings http://www.bankrate.com/compare-rates.aspx http://www.bankrate.com/compare-rates.aspx  Stock investments http://www.youtube.com/watch?v=sjyWxERgGJs http://www.youtube.com/watch?v=sjyWxERgGJs  Bonds http://www.bloomberg.com/markets/rates/index.html http://www.bloomberg.com/markets/rates/index.html  http://www.investinginbonds.com/learnmore.asp?catid=9 http://www.investinginbonds.com/learnmore.asp?catid=9 Chapter 230

31.  Savings-  Low risk / low yield option  Stock-  High risk / potentially high yield  ownership in a corporation  Bond-  Low risk / mid yield  represents debt for an organization and YOU are the creditor Chapter 231

32.  Government budget surplus ▪ Gov’t spent less than it took in ▪ Gov’t may reduce taxes or increase spending on various programs  Government budget deficit ▪ Gov’t spent more than it took in ▪ Over time this amount builds up… cummulative  National debt National debt ▪ Total amount owed by the Federal Government Chapter 232

33.  Personal income tax ▪ 20-30% of earned income (latest figures state a rate of 38%) ▪ Collected on a pay-as-you-earn basis ▪ Federal, state, and local  Property tax ▪ Based on appraisals of land and property ▪ Local tax  Sales tax Sales tax ▪ Taken at time of purchase ▪ State tax ▪ PA sales tax is 6% ▪ Sin tax- A tax on certain items, such as cigarettes and alcohol, that are regarded as neither necessities nor luxuries. ▪ Excise taxes- taxes paid when purchases are made on a specific good- Often included in the price of the product. Also placed on some activities, such as on wagering or on highway usage by trucks. Chapter 233

34.  Most common forms:  Loans  Bonds  Mortgages  Poor debt management results in company failure Chapter 234

35.  Most common:  Credit cards  Auto loans  Mortgages  Pros:  Convenient  Great for emergencies  Cons:  Overuse  Overspending Chapter 235

36. Chapter 236 Name some examples of capital projects. Answer Capital projects include the purchase of any item a business will use over an extended period of time such as land, buildings, and equipment. Checkpoint >>

37. Chapter 237 What is the cause of a budget deficit? Answer A budget deficit occurs when a government or organization spends more than it takes in. Checkpoint >>

38.  Limited access to health care  Need for proper housing for many people  Traffic and crime  Unemployment  Housing market Chapter 238

39. Chapter 239 Checkpoint >> What economic challenges do countries face in the future? Answer 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.

40.  To be done by Wednesday:  Page 47 ▪ 1, 2 and 3 or 4  To be done by date of Test (Friday 9/21):  Pages 48-51 ▪ 1-30 ▪ Extra Credit: Choose up to two (2) from 31-44 Chapter 240