1 2 Economic Activity 2-1 Measuring Economic Activity C H A P T E R2Economic Activity2-1 Measuring Economic Activity2-2 Economic Conditions2-3 Other Measures of Business Activity
2 2-1 Measuring Economic Activity GoalsDefine Gross Domestic ProductDescribe economic measures of laborIdentify economic indicators for consumer spending
3 Gross Domestic Product (GDP) The total value of all final goods and services produced in a country during one year.Other ways to determine how well an economy is doing:Compare output from year to yearGovt collects information from producers and estimate national output.
4 Comparison of GDP of Selected Countries CountryTotal GDP ($)GDP Per Capita ($)United States14.3 Trillion46,400Mexico1.5 Trillion13,500China8.8 Trillion6,600Canada1.3 Trillion38,400Japan4.1 Trillion32,600Poland690.1 Billion17,900Germany2.8 Trillion34,100Saudi Arabia585.5 Billion20,400India3.6 Trillion3,100South Africa495.1 Billion10,100Brazil2.0 Trillion10,200Nigeria357.2 Billion2,400
5 Components of GDPGDP includes four major categories of economic activity:Consumer Spending for food, clothing, housing, and other aspects.Business spending for buildings, equipment, and inventory items.Government spending to pay employees and to buy supplies and other goods and servicesThe exports of a country less the imports into the country .
6 Components of GDPSome goods and services are not included in GDP like:Value of work you do yourselfOnly Final goods such as cars are counted when you measure GDP.If a GDP increases year to year, this usually signals that an economy is growing and is healthy.
7 Comparing GDPThe more goods and services that are produced, the healthier the economy is.GDP Per Capita aka Output per person.GDP / The total population.
8 Checkpoint #1What types of economic activities are not included in GDP?GDP only applies to reported final goods and servicesMoney earned for goods and 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
9 Labor ActivitiesThe workers of a country contribute to the economy in several ways:Labor activities create needed goodsThe wages they receive are spent to create demand for various items
10 Employment Today more then 155 million people work in the United State These members of the Labor Force are employed in thousands of different jobs.The Labor Force includes all people above the age of 16 who are actively working or seeking work.Unemployment RateThe portion of people in the labor force who are not working.Main cause for unemployment is reduced demand for goods and services being provided by various of workers.
11 ProductivityA vital source of economic growth is an increase in output per workerProductivity - The production output in relation to a unit of input, such as a worker.Improvements in:Capital ResourcesWorker TrainingManagement Techniques
12 Checkpoint #2 How can productivity be increased? By improvements in capital resources, worker training, and management techniques
13 Consumer SpendingThe money you earn and spend is one of the most important factors for economic growthPersonal IncomeRefers to salaries and wages as well as investment income and government payments to individuals.Retail SalesSales of durable and non-durable goods bought by consumers.An indictor of general consumer spending patterns in the economy
14 Checkpoint #3 What are the main sources of personal income? Wages SalariesInvestment IncomeGovernment Payments
15 2-2 Economic Conditions Change Goals:Describe the four phases of the business cycleExplain causes of inflation and deflationIdentify the importance of interest rates
16 The Business CycleEconomic and business activity tends to move in cycles.Business Cycle refers to the movement of the economy from one condition to another and back againBusiness cycles are the recurring ups and downs of GDP and have 4 phases:ProsperityRecessionDepressionRecovery
17 ProsperityA period in which most people who want to work are working, businesses produce goods and services in record numbers, wages are good, and the rate of GDP growth increases.The peak of the business cycle.Does not go on forever
18 RecessionA period in which demand begins to decrease, businesses lower production, unemployment begins to rise, and GDP growth slows for two or more quarters of a calendar year.May not be too serious or last very long.Often signals trouble for workers in related businessesRipple Effect
19 DepressionA phase marked by a prolonged period of high unemployment, weaker consumer sales, and business failures.Recession deepens and spreads throughout the entire economyGDP falls rapidly during a depression
20 RecoveryThe phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again.People gain employmentConsumers regain confidence about their futures and begin buying again.
22 Checkpoint #4 What are the 4 phases of the business cycle? Prosperity RecessionDepressionRecovery
23 Consumer PricesA problem with which most nations have to cope is INFLATION.An Increase in the general level of prices.Buying power decreasesInflation is the most harmful to people living on fixed incomes.Income does not change
24 Causes of InflationWhen demand for goods and services is greater than the supplyWhen a large supple if money, earned or borrowed, is spent for goods that are in short supply, prices increasePrices of goods and services usually rise so fastWages go up faster than prices, businesses tend to hire fewer workers
25 Measuring Inflation Inflation rates vary Mild inflation (2 or 3 percent a year) can stimulate economic growth.Wages rise slowly than the prices of productsConsumer Price Index (CPI)A number that compares prices in one year with prices in some earlier base year.
26 Deflation A decrease in the general level of prices. Occurs in periods of recession and depression.Products of prices are lower, but people have less money to buy them.The Great Depression of the 1930sCost of computers
27 Checkpoint #5 What are the main causes of inflation? Inflation is an increase in the general level of prices that occurs when the demand for goods and services is great than supply.
28 Interest Rates The cost of money Have a strong influence on business activitiesCompanies and governments that borrow money and consumers are affected by interest rates.People with poor credit rating pay a higher interest rate than people with good credit
29 Types of Interest Rates Prime Rate – the rate the banks make available to their best business customers.Discount Rate – the rate financial institutions are charged to borrow funds from Federal Reserve BanksT-Bill Rate – the yield on short term (13 week) U.S. debt obligationsTreasury Bond Rate – the yield on long-term U.S. government debt obligations of up to 30 years.
30 Types of Interest Rates Mortgage Rate– the amount individuals pay to borrow for the purchase of a new home.Corporate Bond Rate – the cost of borrowing for large U.S. corporationsCertificate of Deposit Rate– the rate for time deposits at savings institutions.
31 Checkpoint #6How do interest rates affect business activities in our economy?Interest rates can encourage or discourage borrowing or spending.Lower interest rates allow consumers greater spending power
32 2-3 Other Measures of Business Activity Goals:Discuss investment activities that promote economic growthExplain borrowing activities by government, business, and consumersDescribe future concerns of economic growth
33 Investment Activities Investing for the future can happen in several waysCapital SpendingRefers to money spent by a business for an item that will be used over a long period of time.Capital ProjectsInvolve spending by businesses for items such as land, buildings. Equipment, and new products.
34 Personal Savings Major source of investment funds Provide the money necessary for buying expensive equipment or creating new productsInterest is paid on the money they depositThe savings rate of a country is an important factor for economic growth
35 The Stock MarketMany people invest by becoming part owners of a corporation.Stock – represents ownership in a corporationStock ownership is also known as EQUITYThe value of shares of affected by many factors.Supply and DemandCompany has higher earnings
36 The Bond Market Sales of Bonds Creditor Bond represents debt for an organizationCreditorWhen you purchase corporate or government bondYou lent money to money to the organizationBond holders are paid interest for the use of their money.
37 Checkpoint #7 Name some examples of capital projects? The purchase of any item a business will use over an extended period of time such as land, buildings, and equipment.
39 Government DebtPeople expect services from federal, state, and local governments.Government uses borrowing to finance various projects. (Schools, highways)Budget SurplusGovernment spends less than it takes inGovernment may reduce taxes or increase spending in various programs
40 Government Debt Budget Deficit Government may spend more than it takes in.The total amount owed by the governmentNational Debt
41 Business DebtLoans, bonds, and mortgages are common borrowing methods used by businessesEfficient use of borrowing can be helpful to companiesUsing the funds of others can help expand sales and profits
42 Consumer DebtPeople commonly use credit cards, auto loans, home mortgages to finance their purchasesCareful use of credit cards can be important for economic growth.
43 Checkpoint #8 What is the cause of a budget deficit ? When the government or organization spends more than it takes in.
44 Economic Challenges and Adopting to Current Markets Global business growth is occurring in emerging marketsPlaces where consumer incomes and buying power are increasing because of economic expansionQuality of life improvesCountries lack the technology, education, and business systems