1. 1.02 ~ ECONOMIC ACTIVITIES AND CONDITIONS CHAPTER 2 MEASURING ECONOMIC ACTIVITY

2. GROSS DOMESTIC PRODUCT (GDP) The total dollar value of all final goods and services produced in a country during one year. http://www.bbc.co.uk/news/business-13200758 Chapter 2Slide 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 2Slide 3

4. NOT INCLUDED IN GDP Value of the work you do for yourself Intermediate goods used in manufacturing, such as steel and fabrics. Chapter 2Slide 4 NOTE: If GDP increases from year to year, this usually signals that an economy is growing and is healthy.

5. GDP PER CAPITA GDP per capita 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 5

6. MEASURING ECONOMIC ACTIVITIES Employment Productivity Labor Activities Personal Income Retail Sales Consumer Spending Personal Savings The Stock Market The Bond Market Investment Activities Government Debt Business Debt Consumer Debt Borrowing Activities 6

7. 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 2Slide 7

8. 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) http://www.bls.gov/news.release /empsit.nr0.htmhttp://www.bls.gov/news.release /empsit.nr0.htm Chapter 2Slide 8

9. 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 2Slide 9

10. CONSUMER SPENDING 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 2Slide 10

11. 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 2Slide 11

12. LESSON 2-3 LESSON 2-3 OTHER MEASURES OF BUSINESS ACTIVITY Chapter 2 Slide 1 Goals Discuss investment activities that promote economic growth. Explain borrowing activities by government, business, and consumers. Describe future concerns of economic growth.

13. INVESTMENT ACTIVITIES Chapter 2Slide 13 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.

14. INVESTMENT ACTIVITIES, CONT’D. Chapter 2Slide 14 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

15. PERSONAL SAVINGS Chapter 2Slide 15 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. Factor for Economic Growth Companies use the money you deposit to purchase expensive equipment or for creating new products and to loan out to other people. In return, savers are paid interest for the use of this money.

16. THE STOCK MARKET Chapter 2 Slide 16 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

17. THE BOND MARKET Chapter 2 Slide 17 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.

18. BORROWING ACTIVITIES Chapter 2 Slide 18 Credit is often referred to as “Buy now, pay later” Borrowing can have an important economic influence Borrowing Government Debt Business Debt Consumer Debt

19. GOVERNMENT DEBT Chapter 2 Slide 19 People expect services from federal, state, and local governments. New schools Highways Public buildings Parks

20. GOVERNMENT DEBT, CONT’D. Chapter 2 Slide 20 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 The total amount owed by the federal government is called the national debt.

21. BUSINESS DEBT Chapter 2 Slide 21 Most businesses borrow money at some time. LoansBondsMortgages

22. BUSINESS DEBT, CONT’D Chapter 2Slide 22 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.

23. CONSUMER DEBT Chapter 2Slide 23 Credit Cards Auto LoansHome Mortgages

24. CONSUMER DEBT, CONT’D Chapter 2Slide 24 Convenient Important for economic growth Overuse = financial difficulties Can result in legal action or other trouble

25. FUTURE ECONOMIC CHALLENGES Chapter 2 Slide 25 Limited access to health care Need for proper housing for many people Traffic and crime Unemployment

26. LESSON 2-2 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 2Slide 26

27. 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 2Slide 27

28. Prosperity 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. 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. Recovery Unemployment rate is lowering and demand for products and services is increasing. Business may increase human capital. 28

29. CONSUMER PRICES Chapter 2Slide 29 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

30. 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 2Slide 30