1. Chapter 2 Economic Activity

2. Objectives Describe Gross Domestic Product Describe Gross Domestic Product Identify and describe economic measures of labor. Identify and describe economic measures of labor. Identify economic indicators for consumer spending. Identify economic indicators for consumer spending.

3. Topics Measuring Economic Activity Measuring Economic Activity Economic Conditions Change Economic Conditions Change Other Measure of Business Activity Other Measure of Business Activity

4. Measure Business Activity Key Terms Gross Domestic Product (GDP) Gross Domestic Product (GDP) GDP per capita GDP per capita Unemployment Rate Unemployment Rate Productivity Productivity Retail Sales Retail Sales

5. Gross Domestic Product Economic Growth Economic Growth Increase in the production of goods and services in an economic system. Increase in the production of goods and services in an economic system. Measurement of how your economy is doing from year to year. Measurement of how your economy is doing from year to year. Gross Domestic Product (GDP) Gross Domestic Product (GDP) Total dollar value of all final goods and services produced in a country during one year. Total dollar value of all final goods and services produced in a country during one year.

6. Country Comparison Source: CIA World Factbook

7. Components of GDP 1. Consumer spending for food, clothing, and other needs. 2. Businesses buying capital resources. 3. Government Spending 4. Exports less than Imports

8. Comparing GDP Ways to measure economic growth: Ways to measure economic growth: GDP per capita: GDP per capita: Output per person Output per person GDP Per Capita =Total GDP / Total Population GDP Per Capita =Total GDP / Total Population Increase = Economic Growth Increase = Economic Growth

9. Employment 145 million people work in the U.S. 145 million people work in the U.S. Labor Force; 16 years or older Labor Force; 16 years or older Unemployment Rate Unemployment Rate The portion of people in the labor force who are not working. The portion of people in the labor force who are not working. United States: United States: High: 10.80 % in November of 1982 High: 10.80 % in November of 1982 Low: 2.50 % in May of 1953 Low: 2.50 % in May of 1953 9.60 % in August of 2010 9.60 % in August of 2010

11. Productivity Production output in relations to a unity of input. Production output in relations to a unity of input. Improve upon capital resources Improve upon capital resources Wages = Cost of Producing Goods Wages = Cost of Producing Goods

12. Consumer Spending Personal Income Personal Income Refers to salaries and wages as well as investment income and government payments to individuals. Refers to salaries and wages as well as investment income and government payments to individuals. Retail Sales Retail Sales Sales of durable and nondurable goods bought by consumers. Sales of durable and nondurable goods bought by consumers.

13. Economic Conditions Change We all go through good and bad times. We all go through good and bad times. Business Cycle: Business Cycle: Movement of the economy from one condition to another. Movement of the economy from one condition to another. 4 Phases 4 Phases Prosperity Prosperity Recession Recession Depression Depression Recovery Recovery

14. Prosperity Period in which: Period in which: Most people are working Most people are working Business are producing goods/services in record numbers Business are producing goods/services in record numbers Wages are good Wages are good GDP increases GDP increases

15. Recession Period in which: Period in which: Demand decreases Demand decreases Business lower production Business lower production Unemployment begins Unemployment begins GDP growth is slow moving GDP growth is slow moving

16. Depression Phased marked by: Phased marked by: High unemployment High unemployment Weak consumer sales Weak consumer sales Business failure Business failure

17. Recovery Phase in which: Phase in which: Unemployment declines Unemployment declines Demand increases Demand increases GDP rises GDP rises Economy moves closer to Prosperity Economy moves closer to Prosperity

18. Inflation Increase in the general level of prices. Increase in the general level of prices. 5% increase 5% increase $100 => $105 $100 => $105 Causes: Causes: High demand for Goods/Services High demand for Goods/Services Low supply Low supply

19. Measure Inflation Consumer Price Index (CPI): Consumer Price Index (CPI): A number that compares prices in one year with prices in some earlier years A number that compares prices in one year with prices in some earlier years Cost of necessities may increase fast than non- necessities Cost of necessities may increase fast than non- necessities Necessities (Food, Gas, Health Care) Necessities (Food, Gas, Health Care)

20. Deflation Means a decrease in the general level of prices. Means a decrease in the general level of prices. Price of production is low, but people have less money to spend. Price of production is low, but people have less money to spend.

21. Interest Rates Cost of spending money. Cost of spending money. Higher interest rates = Higher business cost Higher interest rates = Higher business cost Types of Interest Rates: Types of Interest Rates: Prime Rate: Rate available to the best business customer. Prime Rate: Rate available to the best business customer. Discount Rate: Money used by financial institutions. Discount Rate: Money used by financial institutions. Mortgage Rate: Amount borrowed to purchase a home. Mortgage Rate: Amount borrowed to purchase a home. Corporate Bond Rate: Amount used by a large. U.S. Corporation. Corporate Bond Rate: Amount used by a large. U.S. Corporation.

22. Other Measures Key Terms Capital Project Capital Project Stock Stock Bond Bond Budge Surplus Budge Surplus Budget Deficit Budget Deficit National Debt National Debt

23. Investment Activities Investment Activities Think about where you want to be in the future? Think about where you want to be in the future? College or Work Force College or Work Force Capital Projects: Capital Projects: Involves spending by businesses for capital resources and products/services. Involves spending by businesses for capital resources and products/services. Main Sources: Main Sources: Personal Savings Personal Savings Stock Investment Stock Investment Bonds Bonds

24. Personal Savings Money deposited from a bank or financial institution. Money deposited from a bank or financial institution. Earn interest on money deposited Earn interest on money deposited Key element in economic growth. Key element in economic growth.

25. The Stock Market Ownership in a corporation. Ownership in a corporation. or also called “Equity” or also called “Equity” Value towards shares of stock Value towards shares of stock Affected by Supply and Demand Affected by Supply and Demand Higher earnings of a company Higher earnings of a company

26. The Bond Marked Represents debt for an organization. Represents debt for an organization. Purchasing of a corporate or government bond (Creditor) Purchasing of a corporate or government bond (Creditor) Pay interest on the money used Pay interest on the money used

27. Borrowing Government Debt Government Debt Borrowing to produce Schools, Building, Highways, etc… Borrowing to produce Schools, Building, Highways, etc… Budget Surplus: Budget Surplus: Spending less than it takes in. Spending less than it takes in. Budget Deficit: Budget Deficit: Spending more than it takes in. Spending more than it takes in. National Debt: National Debt: Amount owed to the Federal Government. Amount owed to the Federal Government.

28. Borrowing Business Debt Business Debt Loans, bonds, and mortgages are used to finance businesses. Loans, bonds, and mortgages are used to finance businesses. Debt Poor Decisions Debt Poor Decisions #1 reason for business failure. #1 reason for business failure.

29. Borrowing Consumer Debt Consumer Debt Credit Cards, Auto, Mortgage, College Loans, etc… Credit Cards, Auto, Mortgage, College Loans, etc… Using cautious methods can help improve our economy growth. Using cautious methods can help improve our economy growth.