Economic Activity in a Changing World Chapter 3 pp

Introduction to Business, Economic Activity in a Changing World Slide 2 of 55 Learning Objectives After completing this chapter, you’ll be able to: 1.Identify 1.Identify how economic activity is measured. 2.Explain 2.Explain how inflation and deflation work. continued

Introduction to Business, Economic Activity in a Changing World Slide 3 of 55 Learning Objectives After completing this chapter, you’ll be able to: 3.Discuss 3.Discuss the four phases of the business cycle.

Introduction to Business, Economic Activity in a Changing World Slide 4 of 55 Why It’s Important Economic activity affects everyday life. The history of the economy affects the industries and of today and tomorrow.

Introduction to Business, Economic Activity in a Changing World Slide 5 of 55 Measuring Economic Activity Economic indicators are figures used to measure economic performance. They measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries.

Introduction to Business, Economic Activity in a Changing World Slide 6 of 55 Gross Domestic Product (GDP) The total value of the goods and services produced in a country in a given year is called its gross domestic product (GDP).

Introduction to Business, Economic Activity in a Changing World Slide 7 of 55 Gross Domestic Product (GDP) Consumer goods and services Business goods and services Government goods and services Goods and services sold to other countries Economists include four main areas in calculating the GDP:

Introduction to Business, Economic Activity in a Changing World Slide 8 of 55 Gross Domestic Product (GDP) The GDP doesn’t include the goods and services that aren’t reported to the government. Those are items are termed the “Black Market Economy.” Def: A sizable hidden segment of a country's economy that operates on numerous unreported private cash transactions.

Introduction to Business, Economic Activity in a Changing World Slide 9 of 55 Gross Domestic Product (GDP) The standard of living is the amount of goods and services the average citizen can buy.

Introduction to Business, Economic Activity in a Changing World Slide 10 of 55 Graphic Organizer Gross Domestic Product Graphic Organizer Consumergoodsandservices Businessgoodsandservices Governmentgoodsandservices Goodsandservices sold to othercountries +=++ GrossDomesticProduct

Introduction to Business, Economic Activity in a Changing World Slide 11 of 55 Unemployment Rate The unemployment rate measures the number of people who are able to work but don’t have a job during a given period of time.

Introduction to Business, Economic Activity in a Changing World Slide 12 of 55 Unemployment Rate There are different reasons for being unemployed, including: Temporary Seasonal Changes in industry Economic slow down

Introduction to Business, Economic Activity in a Changing World Slide 13 of 55 Unemployment Rate The worst type of unemployment occurs when the entire economy slows down. This type of unemployment lasts until the economy recovers, which can take years.

Introduction to Business, Economic Activity in a Changing World Slide 14 of 55 Unemployment Rate Changes in the unemployment rate show whether an economy is picking up or slowing down. This is one of the chief economic indicators. Why?

Introduction to Business, Economic Activity in a Changing World Slide 15 of 55 Rate of Inflation Inflation is a general increase in the cost of goods and services. Inflation can happen when an economy actually becomes too productive. Demand for goods ↑, producers raise their prices so workers want higher pay.

Introduction to Business, Economic Activity in a Changing World Slide 16 of 55 Rate of Inflation When wages ↑, producers ↑ prices again to pay for the higher wages, and so on. This situation can spiral out of control and lead to hyperinflation.

Introduction to Business, Economic Activity in a Changing World Slide 17 of 55 Rate of Inflation Deflation is a general decrease in the cost of goods and services. When an economy produces more goods than people want, it has to lower prices and cut production.

Introduction to Business, Economic Activity in a Changing World Slide 18 of 55 Rate of Inflation The United States tries to maintain a slow but steady rate of economic growth to avoid both inflation and deflation.

Introduction to Business, Economic Activity in a Changing World Slide 19 of 55 National Debt When the government spends more on programs than it collects in taxes, the difference in the amount is called the budget deficit.

Introduction to Business, Economic Activity in a Changing World Slide 20 of 55 National Debt The total amount of money a government owes is its national debt. If the debt gets too large, a nation can become dependent on other nations or unable to borrow any more money. has the current amount.

Introduction to Business, Economic Activity in a Changing World Slide 21 of 55 National Debt If a nation spends less than its income, it has a budget surplus. The government will probably use a surplus to cut taxes, reduce the national debt, or increase spending for certain programs.

Introduction to Business, Economic Activity in a Changing World Slide 22 of 55 The Business Cycle Over long periods of time economic changes seem to form patterns. The rise and fall of economic activity over time is called the business cycle.

Introduction to Business, Economic Activity in a Changing World Slide 23 of 55 Figure 3.2 BUSINESS CYCLE MODEL The repeated rise and fall of economic activity over time is called a business cycle. What are the four phases of the cycle?

Introduction to Business, Economic Activity in a Changing World Slide 24 of 55 The Business Cycle In a global economy, in which several countries are trading goods and services with one another, one country’s economy can affect its trading partners’ economies.

Introduction to Business, Economic Activity in a Changing World Slide 25 of 55 Prosperity Prosperity is a peak of economic activity. Unemployment ↓ Production of g/s ↑ New businesses open Any number of things can change. Companies produce too much, people stop buying, or inflation starts to rise. ↓

Introduction to Business, Economic Activity in a Changing World Slide 26 of 55 Recession During a recession, economic activity slows down. There is a general drop in productivity and the GDP declines.

Introduction to Business, Economic Activity in a Changing World Slide 27 of 55 Recession A recession can affect only one industry, related industries, or spread to the entire economy or all of the economies of the world.

Introduction to Business, Economic Activity in a Changing World Slide 28 of 55 Recession The ripple effect is when a recession in one industry leads to a recession in other industries.

Introduction to Business, Economic Activity in a Changing World Slide 29 of 55 Depression A deep recession that affects the entire economy and lasts for several years is called a depression. Unemployment↑ Productivity↓ Excess capacity in manufacturing plants. Usually effects more than one country.

Introduction to Business, Economic Activity in a Changing World Slide 30 of 55 Depression A depression can be limited to one country but usually spreads to related countries.

Introduction to Business, Economic Activity in a Changing World Slide 31 of 55 Depression The stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression. Between 1929 and 1933, GDP fell from approximately $103 billion to $55 billion.

Introduction to Business, Economic Activity in a Changing World Slide 32 of 55 Depression During the Great Depression, the number of people out of work rose nearly 800 percent.

Introduction to Business, Economic Activity in a Changing World Slide 33 of 55 Depression During the Great Depression, many banks failed. The money supply fell by one-third.

Introduction to Business, Economic Activity in a Changing World Slide 34 of 55 Recovery A rise in business activity after a recession or depression is called a recovery.

Introduction to Business, Economic Activity in a Changing World Slide 35 of 55 Recovery During a recovery: Production starts to increase People start going back to work and have money to spend again

Introduction to Business, Economic Activity in a Changing World Slide 36 of 55 Recovery The new demand for goods and services stimulates more production The GDP grows New businesses open During a recovery (continued):

Introduction to Business, Economic Activity in a Changing World Slide 37 of 55 Recovery A recovery can take a long time or it can happen quickly. During World War II, the United States recovered from the Great Depression much faster because of the demand for war production.

End of Chapter 3 Economic Activity in a Changing World