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Chapter 2 Measuring economic activity

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1 Chapter 2 Measuring economic activity
1.02 ~ Economic activities and conditions

The total dollar value of all final goods and services produced in a country during one year. Chapter 2

3 Components of GDP Consumer spending for food, clothing, housing, and other spending Business spending for buildings, equipment, and inventory items Government spending to pay employees and to buy supplies and other goods and services The EXPORTS of a country LESS the IMPORTS into a country. Chapter 2

4 NOT Included in GDP Value of the work you do for yourself
CHAPTER 2 4/23/2017 NOT Included in GDP Value of the work you do for yourself Intermediate goods used in manufacturing, such as steel and fabrics. If GDP increases from year to year, this usually signals that an economy is growing and is healthy. Chapter 2 ITB

5 GDP per capita GDP per capita = GDP ÷ Total Population
output per person = GDP ÷ Total Population Increase in GDP per capita means economy is growing Decrease in GDP per capita may mean economy is having trouble

6 LABOR ACTIVITIES The workers of a country contribute to an economy in several ways: Create needed goods and services Wages received are spent to create demand for various items Chapter 2

7 Labor Activities ~ Employment
Labor force consists of all people above age 16 who are actively working or seeking employment. Students, retired people, and others who cannot or do not wish to work are not part of the labor force. Unemployment rate Portion of people in the labor force who are not working (must be looking for work and able and willing to work) Main cause: reduced demand for goods and services As of July 2011, US Unemployment Rate = 9.1% (Bureau of Labor Statistics) Chapter 2

8 Labor activities ~ Productivity
A vital source of economic growth is an increase in output per worker. Productivity the production output in relation to a unit of input. Can be increased by: Improvements in capital resources (equipment and technology) Worker training Management techniques Chapter 2

9 CONSUMER SPENDING Personal income
The money you earn and spend is one of the most important factors for economic growth. Personal income The salaries and wages as well as investment income and government payments to individuals. Chapter 2

10 CONSUMER SPENDING Retail sales The sales of durable and nondurable goods bought by consumers. Main items measured include: Automobiles, Building Materials, Furniture, Gasoline, Clothing Purchases from Restaurants, Department Stores, Food Stores, Drug Stores Measured on a monthly basis by the U.S. Department of Commerce Chapter 2

11 >> C H E C K P O I N T Unemployment/GDP mapping activity.
You are to label the blank US map with the following information: Unemployment rate per state GPD per capita per state Answer the following question based on your map: What correlation can you see between the unemployment rates and the GDP per capita? Chapter 2

12 LESSON 2-2 Economic Conditions Change
Goals Describe the four phases of the business cycle. Explain causes of inflation and deflation. Identify the importance of interest rates. Chapter 2

13 THE BUSINESS CYCLE Our economy has its ups and downs; seems to run in cycles Good times Bad times Good times This movement of the economy from one condition to another and then back again is called a Business Cycle. Four phases Chapter 2

14 Prosperity Recession Recovery Depression
Employment rate and demand for products and services are high. Businesses continue making profits. Recession Unemployment rate is increasing and demand for products and services are lowering. Businesses must strategize to stimulate demand for products & services. Recovery Unemployment rate is lowering and demand for products and services is increasing. Business may increase human capital. Depression Unemployment rate is high and demand for products and services is lowering. Businesses try to maintain profits or break even to avoid going out of business.

15 CONSUMER PRICES An increase in the general level of prices.
Inflation An increase in the general level of prices. Demand for goods and services is greater than supply causing prices to rise faster than wages Buying power of the dollar decreases It now takes more money to buy the same amount of goods and services Most harmful to people living on fixed incomes – retirees and disabled persons Chapter 2

16 A decrease in the general level of prices
Deflation A decrease in the general level of prices Usually occurs during periods of recession and depression Prices of products are lower, but people have less money to buy them Significant deflation occurred in the U.S. during the Great Depression of the 1930s, when prices declined about 25%. Chapter 2

17 LESSON 2-3 Other Measures of Business Activity
Goals Discuss investment activities that promote economic growth. Explain borrowing activities by government, business, and consumers. Describe future concerns of economic growth. Chapter 2

18 Investment Activities
Your time in school is an investment in your future Companies buying buildings and equipment Capital spending – money spent by a business for an item that will be used over a long period Investing for the future can happen in several ways. Chapter 2

19 Investment Activities, cont’d.
Capital projects involve spending by businesses for items such as land, buildings, equipment, and new products. Comes from 3 main sources: Personal savings Stock investments Bonds Chapter 2

20 Personal Savings Chapter 2 Factor for Economic Growth
Companies use the money you deposit to purchase expensive equipment or for creating new products. In return, savers are paid interest for the use of this money. Personal savings rate of the U.S. has been quite low in recent years – as little as one percent Why does this raise concerns? There is less money available for use by borrowers. Chapter 2

21 The Stock Market Many people invest by becoming part owners of a corporation. Investors are issued stock to represent this ownership. Supply and demand are major influencers in stock prices If a company has higher earnings, more people will want to buy its stock, which causes the value to increase Chapter 2

22 The Bond Market Another investment activity involves the sale of bonds. A bond represents debt for an organization. When you purchase a corporate or government bond, you have become a creditor. In return, you are paid interest for the use of your money. Chapter 2

23 Government Debt New schools Highways Public buildings Parks
Credit is often referred to as “Buy now, pay later” Borrowing can have an important economic influence People expect services from federal, state, and local governments. New schools Highways Public buildings Parks Chapter 2

24 Government Debt, cont’d.
A government may spend less than it takes in – a budget surplus is the result. May cause a reduction in taxes or increased spending A government may spend more than it takes in – a budget deficit is the result. May cause an increase in taxes or reduced spending Chapter 2

25 Poor decision-making can lead to debt problems and business failure.
Economic decision-making plays a major role in how well companies (both large and small) will manage their debt. Borrowing can be helpful when funds are used to expand sales and profits. Poor decision-making can lead to debt problems and business failure. Chapter 2

26 >> C H E C K P O I N T What is the cause of a budget deficit?
Chapter 2

Limited access to health care Need for proper housing for many people Traffic and crime Unemployment Chapter 2

28 >> C H E C K P O I N T What are future economic concerns for a country’s economy? Chapter 2

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