1. Measuring the Economy Economics Pt. 2, Lesson 4

2. Economic Fluctuations Economics can be complex because there are so many interrelated parts Economics can be complex because there are so many interrelated parts Gross Domestic Product (GDP): measure of the value of all final goods and services produced in a country in one year Gross Domestic Product (GDP): measure of the value of all final goods and services produced in a country in one year The economy tends to grow over time, but it does not grow at a constant rate The economy tends to grow over time, but it does not grow at a constant rate Business cycle: alternating periods of growth and decline Business cycle: alternating periods of growth and decline Our economy has many interrelated parts Our economy has many interrelated parts

3. Expansion and Recession Expansion: when GDP increases; doesn’t matter whether the economy is growing by a lot or a little Expansion: when GDP increases; doesn’t matter whether the economy is growing by a lot or a little Peak: highest point in an expansion Peak: highest point in an expansion Expansions are normally longer than recessions Expansions are normally longer than recessions Recession: when GDP goes down for six straight months, although many last longer than that Recession: when GDP goes down for six straight months, although many last longer than that When the economy declines many people lose their jobs or see a reduction in income When the economy declines many people lose their jobs or see a reduction in income

4. Unemployment and Fiscal Policy Unemployment rate: percentage of people in the civilian labor force who are not working but are looking for a job Unemployment rate: percentage of people in the civilian labor force who are not working but are looking for a job A 1% drop in the unemployment rate results in a 2% rise in total income in the economy A 1% drop in the unemployment rate results in a 2% rise in total income in the economy Fiscal Policy: changes in government spending or tax policies; can be used to try and improve the economy Fiscal Policy: changes in government spending or tax policies; can be used to try and improve the economy Tax cuts vs. spending increases; political differences Tax cuts vs. spending increases; political differences Tax cuts are one form of fiscal policy Tax cuts are one form of fiscal policy

5. Price Stability Inflation: sustained increase on the general level of prices; gas prices Inflation: sustained increase on the general level of prices; gas prices Rapid inflation hurts the economy because it reduces the purchasing power of money and may alter the decisions people make Rapid inflation hurts the economy because it reduces the purchasing power of money and may alter the decisions people make Consumer Price Index: govt. samples the prices every month for about 400 products commonly used by consumers to help determine the rate of inflation Consumer Price Index: govt. samples the prices every month for about 400 products commonly used by consumers to help determine the rate of inflation Inflation is especially hard on people who are on fixed incomes Inflation is especially hard on people who are on fixed incomes Inflation often results in speculation rather than capital investment Inflation often results in speculation rather than capital investment What else do high gas prices cause an increase in price in? What else do high gas prices cause an increase in price in?

6. Stocks Profits come from stocks in two ways Profits come from stocks in two ways 1- dividends: a share of the corporation’s profits that are paid to shareholders 1- dividends: a share of the corporation’s profits that are paid to shareholders 2- capital gain: money gained when stock is sold for more than it cost to buy 2- capital gain: money gained when stock is sold for more than it cost to buy A companies stock price is determined by supply and demand; profits, takeovers, actions by competitors, and breakthroughs can affect a stock’s price A companies stock price is determined by supply and demand; profits, takeovers, actions by competitors, and breakthroughs can affect a stock’s price Stocks have the potential to generate a large profit, but you can also lose all you investment Stocks have the potential to generate a large profit, but you can also lose all you investment New York Stock Exchange New York Stock Exchange

7. Stock Markets Stock Market Indexes: Dow Jones-Industrial Average, and Standard and Poor’s; give a representative sample of the whole market Stock Market Indexes: Dow Jones-Industrial Average, and Standard and Poor’s; give a representative sample of the whole market Stocks are bought and sold at a stock exchange; most people use a broker Stocks are bought and sold at a stock exchange; most people use a broker New York Stock Exchange is the largest in US, NASDAQ used by many technology companies New York Stock Exchange is the largest in US, NASDAQ used by many technology companies Exchanges are also in Sydney, Tokyo, London, and many more Exchanges are also in Sydney, Tokyo, London, and many more Bull Market: when investors expect economic growth Bull Market: when investors expect economic growth Bear Market: when investors expect economic decline Bear Market: when investors expect economic decline Bull outside Morgan Stanley brokerage offices in NYC; symbol of what? Bull outside Morgan Stanley brokerage offices in NYC; symbol of what?