Chapter 3 Economic Activity in a Changing World pp. 34-47

Why It’s Important Economic activity affects everyday life. The history of the economy affects industries and people of today and tomorrow.

Key Words gross domestic product (GDP) standard of living inflation deflation budget deficit national debt budget surplus business cycle prosperity recession depression recovery

Measuring Economic Activity Economic indicators measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries.

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).

Gross Domestic Product Graphic Organizer Graphic Organizer Gross Domestic Product Goods and services sold to other countries Consumer goods and services Business goods and services Government goods and services Gross Domestic Product + + + =

Gross Domestic Product (GDP) The standard of living is the amount of goods and services the average citizen can buy.

Figure 3.1 GROSS DOMESTIC PRODUCT The gross domestic product (GDP) is the output of goods and services produced in a country. What percentage did the GDP increase from the end of Year 2 to the beginning of Year 3?

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. Changes in the unemployment rate show whether an economy is picking up or slowing down.

Unemployment Rate There are different reasons for being unemployed, including: Temporary Seasonal Changes in industry Economic slowdown

Rate of Inflation Inflation is a general increase in the cost of goods and services. As the demand for goods goes up, producers raise their prices. To pay the higher prices, workers demand higher wages. If this cycle continues, it can lead to hyperinflation.

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.

Rate of Inflation The United States tries to maintain a slow but steady rate of economic growth to avoid both inflation and deflation.

National Debt When the government spends more on programs than it collects in taxes, the difference in the amount is called the budget deficit.

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.

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.

The Business Cycle Prosperity Recession Depression Recovery The rise and fall of economic activity over time is called the business cycle. The four phases are: Prosperity Recession Depression Recovery

What are the four phases of the cycle? 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?

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.

Recession – more info There is a general drop in the total production of goods and services, so the GDP declines. A recession can affect only one industry, related industries, or spread to the entire economy.

Depression – an example 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. The number of people out of work rose nearly 800 percent. Many banks failed. The money supply fell by one-third. The Recovery - During World War II 1941+, the US recovered from the Great Depression much faster because of the demand for war production.

How has the Internet changed the way people do business?