1. CHAPTER 2 Economic Activity

2. Employment Outlook  Job growth in the economic development field will continue to grow over the next decade.  Specialized technical skills (engineering, health care, computer technology, food processing) will be in demand, especially in developing economics of the world.

3. Job Titles Economist Transportation engineer Urban and regional Planner Survey Researcher Statistician Statistical Assistant Budget Analyst Financial Analyst Operations Research Analyst  ***Requires a bachelor’s degree at least some masters or doctorates  ***Sociology and cultural knowledge is needed for work in urban settings and in developing nations.  ***Special training in statistics, research, health care, technology, nutrition, and other fields will be helpful.

4. 2.1 MEASURING Economic Activity  Key Terms: Gross Domestics Product GDP per capita Unemployment Rate Productivity Personal Income Retail Sales

5. 2.1 Objectives 1. Define gross Domestic Product 2. Describe economic measures of labor 3. Identify economic indicators for consumer spending

6. Gross Domestic Product (GDP)  Economic Growth: – refers to a steady increase in the production of goods and services in an economic year.  Different Way To Measure Economic Growth 1. Gross Domestic Product: - is the most widely to measure Economic Growth.  - is the total dollar value of all final goods and services produced in a country during one year. 2. GDP Per Capita: - or output per person Calculated by GDP/Population – GDP per capita

7. Four Major Components Of GDP 1. Consumer spending for food, clothing, housing, and other aspects. 2. Business spending for building, equipment, and inventory items. 3. Government spending to pay for employees and to buy supplies and other goods and service. 4. The exports of a country less the imports into the country.

8. Exceptions  GDP does not include the value of work that you do for yourself. Ex cutting your grass, but if you owned a grass cutting business it would be included.  If the GDP increases from year to year, this means the economy is going and is healthy

9. GDP Per Capita:  Another way to measure economic growth  Calculated by dividing GDP by the total population Example – Suppose that GDP doesn’t change over the last year, and suppose the population increases; therefore the same output would have to be divided among more people. An increase in GDP per capita means an economy is growing. A decrease may mean that the economy is having trouble. GDP /population = GDP per capita

10. Labor Activities Workers tribute to the economy in several ways 1. labor activities create needed goods and services 2. the wages they earn are spent to create demand for carious items Employment Members of the labor force and produce thousand of different products and services Consist of people above 16  Unemployment Rate: - Is the portion of the people in the labor force who are willing and able to work, but unable to find work Economic statistic of concern Unemployment rate vary from month to month and are different in different areas Main cause of unemployment is a reduce for demand for goods and services being provided by various workers People are considered to be unemployed if they are looking for working and willing to work, but can’t find a job.

11. Productivity A vital source of economic Growth is an increase in output per worker.  Productivity: - is the production output in relation to a unit of input, such as a worker. Improvements in capital resources (equipment and technology), workers training, and management techniques can result in more output per worker.

12. Consumer Spending The money you earn and spend is one of the most important factors for economic growth.  Personal Income: - refers to salaries and wages as well as investments income and government payment to individuals  Retail Sales :- sales of durable and nondurable goods bought by consumers Measured monthly by the Department of Commerce. Increase in Retail sales means economic growth These funds provide the foundation for buying needed goods and services.

13. Retail Sales These sales are an indicator of general consumer spending patterns in the economy Increase in retail sales usually means economy growth  Main items measured are:  Automobiles  Building material  Furniture  Gasoline  Clothing  Purchases from restaurants, department store, food stores and drug stores

14. Chapter 2.1 Review questions  Complete the Questions on the Worksheets as a review

15. Chapter 2.2 – Economic Conditions Change  Key Terms: Business Cycle Prosperity Recession Depression Recovery Inflation Price Index Deflation

16. Business Cycle  Business Cycle: - the movement of the economy from one condition to another and back again Are recurring ups and downs of GDP Four Phases 1. Prosperity 2. Recession 3. Depression 4. Recovery

17. Prosperity  Prosperity: - is the 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 Demand for goods and services are high Highest point of the business cycle Doesn’t go on forever

18. Recession  Recession: - when the economy slows down; second phases of the business cycle Demand begins to decrease Businesses lower production Unemployment begins to rise GDP growth slows for two or more quarters of the calendar year  *May not last very long, but may cause trouble for groups of people in related businesses. This drop in related businesses is called the Ripple effect.

19. Depression  Depression: - When the recession deepens and spreads throughout the entire economy; the third phase of the business cycle Prolonged period of high unemployment, weak consumer sales, and business failure. GDP falls rapidly Great Depression of U.S. history (1930-1940) 25% of all U.S. labor force was unemployed Many people could not afford to satisfy even their basic needs. Doesn’t go on forever

20. Recovery  Recovery: - when unemployment begins to decrease, demand for goods and services increases, GDP begins to decrease four phase of the business cycle People get jobs People Gain confidence about their future and begin buying again.

21. Inflations  Inflation is a huge problem that most nations have to deal with.  Inflation : - is an increase in the general level of prices.  Buying power of the dollar decrease.  Example: if prices increase 5% during the last year, items that cost $100 would now cost $105. This mean it now takes more money to buy the same amount of goods and services Inflation is most hurtful to people on fixed incomes Who would that include?

22. Causes of Inflation When demand for goods and services is greater than the supply. When a large supply of money, earned or borrowed, is spent for goods that are in short supply, prices increase. Even though wages tend to increase during inflation, prices of goods and services usually rise so fast that the wage earner never seems to catch up.

23. Measuring Inflation  1950’s and 1960’s – annual inflation rate was 1 to 2 percent  1970’s and 1980’s – the cost of living increase 10 to 12 percent annually.  Consumer Price Index: - is a number that compares prices in one year with some earlier base year is one of the most watched measures of inflation

24. Deflation  Deflation: - Opposite of inflation; a decrease in the general level of prices. Usually occurs in periods of recession and depression. Prices of products are lower, but people have less money to buy them.

25. Types of Interest Rates Many different types of interest rate which represent the cost of money for different groups in different settings 1. Prime Rate: - the rate banks make available to their business customers, such as large corporations. 2. Discount Rate: - is the rate financial institutions are charges to borrow funds from the Federal Reserve banks. 3. T-Bill Rate: -is the yield on short-term (13- week) U.S. government debt obligations.

26. Types of Interest Rates 4. Treasury Bond Rate: - is the yield on long-term (20-year)U.S. government debt obligations. 5. Mortgage Rate: - is the amount individuals pay to borrow for the purchase of a new home. 6. Corporate Bond Rate: - is the cost of borrowing for large U.S. corporations 7. Certificate of Deposit: - is the rate for six- month time deposits at savings institutions.

27. Changing Interest Rate Each Day, the cost of money (interest) changes because of various reason The supply and Demand for money is a major influence on the level of interest rates. As amounts saved increase, interest rates tend to decline When borrowing by consumers, businesses and government increases, interest rates are likely to rise

28. 2.2 Review  Complete the 2.2 Review Worksheets

29. Chapter 2.3 Other Measurements of Business Activity

30. Investment Activities  Investing for the future can happen in several ways. You time in school is an investment for your future.  When companies buy buildings and equipment; they are also investing in their future.  Capital Spending: - refers to money spent by a business for an item that will be used over a long period.  Capital Project: - involve spending by businesses for items such as land, building, equipment, and new projects.  The money for capital projects comes from three main sources: 1. Personal Savings 2. Stock investments 3. Bonds

31. Personal Savings A major source of investment funds is personal savings. Companies use money you deposit in a bank or other financial institutions. These funds provide the money necessary for buying expensive equipment or creating new products. In return, savers are paid interest on the money they deposit. The savings rate of a country is an important factor for economic growth. In recent years, the personal savings rate of the United States has been quite low, often below one percent. This situation can cause economic concerns in the future.

32. The Stock Market  Corporations are a major type of business organization. Many people invest by becoming part owners of a corporation.  Stock: - represents ownership in a corporation. Stock ownership is commonly called equity, which means “ownership”  The value of shares of stock is affected by 2 major factors. 1. Supply and demand are major influences. 2. If a company has higher earnings, more people will want to buy its stock. This causes the value to increase. Facebook Example  $31 dollars when first went public now in the teen.

33. The Bond Market  The Bond Market  Another investment activity involves the sales of bonds.  Bond: - represents debt for an organization.  If you purchase a corporate or government bond, you are a creditor. This means you have lent money to the organization. In return, bondholders are paid interest for use of their money.

34. Borrowing  Government Debt People expect services from federal, state, and local government. Those services cost money.  Often, government uses borrowing to finance various projects.  New Schools  Public buildings  Highways,  Parks A government may spend less than it takes in. When this occurs, a Budget Surplus is a result. If a surplus exists, government may reduce taxes or increase spending on various program. In contrast, a government may spend more than it takes in. This situation is called a Budget Deficit. Over time, deficits build up. The total amount owed by the federal government is called the National Debt. 

35. Borrowing  Business Debt Loans, bonds, and mortgages are common borrowing methods, used by businesses. Most companies, large and small, use debt at some time. Efficient use of borrowing can be helpful to companies. Using the funds of others can help expand sales and profits. Sometimes, when poor decisions are made, debt creates problems. Poor debt management can result in a company going out of business.

36. Borrowing  Consumer Debt People commonly use credit cards, auto loans and  home mortgages to finance their purchases. The use of credit cards can be convenient. Often, overuse of credit cards result in financial  difficulties for individuals and families. Careful use of credit can be important for economic  growth. In Contrast, unwise borrowing can result in legal action and other trouble.

37. Future Economic Challenges  The ability of an economy to produce output determines its growth. The private enterprise system in the United States has worked quite well. Government leaders and citizens know that it can be made to work even better as they strive to develop new technologies and find solutions for economic problem.  Various economic problems exist that need to be solved. 1. Many people do not have access to adequate health care. 2. Some people do not have proper housing, especially in large cities. 3. Traffic and crime are also matters of concern for many. 4. Too many workers are unemployed or do not have appropriate employment. 

38. 2.3 Review  Please Complete the Review Sheet