Chapter 3 Economic Activity in a Changing World

Learning Objectives 1.IDENTIFY how economic activity is measured 2.EXPLAIN how inflation and deflation work 3.DISCUSS the four phases of the business cycle

Why Is This Important? Economic activity affects everyday Economic activity affects everyday life. The history of the economy affects industries and people today and tomorrow.

A major purpose of an economic system is to produce the services wanted by people.A major purpose of an economic system is to produce the services wanted by people. Figures are used to measure economic performance.Figures are used to measure economic performance. These figures are called economic indicators. They measure:These figures are called economic indicators. They measure: –How much a country is producing –Whether its economy is growing –How it compares to other countries

Goods and services that satisfy your wants and needs are the FINAL output of an economy. They are the result of all the activity in the country.

Measuring Economic Activity GDPGDP Unemployment RateUnemployment Rate Rate of InflationRate of Inflation National DebtNational Debt

GDP An important measure of a country’s economic health is its level of productivity, or how much it produces. The total value of the goods and services produced in a country in a given year is called its gross domestic product The US has a very high GDP.

How To Calculate GDP Consumer goods and servicesConsumer goods and services Business goods and servicesBusiness goods and services Government goods and servicesGovernment goods and services Goods and services sold to other countriesGoods and services sold to other countries

Unemployment Rate Measures the number of people of are able to work but don’t have a job during a given period of time.Measures the number of people of are able to work but don’t have a job during a given period of time. Changes in the unemployment rate show whether an economy is picking up or slowing down.Changes in the unemployment rate show whether an economy is picking up or slowing down.

Types of Unemployment See mploymenthttp://en.wikipedia.org/wiki/Types_of_une mploymenthttp://en.wikipedia.org/wiki/Types_of_une mploymenthttp://en.wikipedia.org/wiki/Types_of_une mployment

Rate of Inflation An increase in the cost of goods and servicesAn increase in the cost of goods and services CAN happen when an economy is too productive.CAN happen when an economy is too productive. The more people are employed, the more they spend.The more people are employed, the more they spend.

Rate of Inflation Cont’d. As demand goes up producers raise their prices.As demand goes up producers raise their prices. To pay the higher prices, workers demand higher wages.To pay the higher prices, workers demand higher wages. Wages go up, producers raise their prices to pay the wages.Wages go up, producers raise their prices to pay the wages. Deflation is a general decrease in the cost of goods and services.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. As a result, people have less money to buy goods so the demand continues to go down. SUPPLY > DEMAND = DEFLATION

National Debt Main source of government income is TAXES which pays for social programs.Main source of government income is TAXES which pays for social programs. Amount of money a government owes is national debt.Amount of money a government owes is national debt. GOVN’T REVENUE > EXP. = SURPLUS GOVN’T REVENUE > INCOME = BUDGET DEFICIT

PHASES OF THE BUSINESS CYCLE ProsperityProsperity RecessionRecession DepressionDepression recoveryrecovery

Characteristics of Prosperity Low unemploymentLow unemployment Production is highProduction is high New businesses openNew businesses open

Characteristics of Recovery Production starts to increaseProduction starts to increase People go back to workPeople go back to work Spending increasesSpending increases

Characteristics of Recession Spending decreasesSpending decreases Demand increasesDemand increases Unemployment rate increasesUnemployment rate increases

Characteristics of depression High unemploymentHigh unemployment Low productivityLow productivity

Changes in the business cycle affect the economy, industries, and working people. The economic ups and downs of one country can affect another. Depression are rare – Great Depression/Stock Market Crash