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1 . 0 2 ~ E C O N O M I C A C T I V I T I E S A N D C O N D I T I O N S
CHAPTER 2MEASURING ECONOMIC ACTIVITY
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 2 Slide 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 Slide 4
NOT INCLUDED IN GDP
Value of the work you do for yourself
Intermediate goods used in
manufacturing, such as steel and
fabrics.Chapter 2 Slide 5
NOTE: If GDP increases from year to year, this usually
signals that an economy is growing and is healthy.
GROSS DOMESTIC PRODUCT (GDP)
• Decision-Making Strategies, #31-32, Page 50 in textbook
Chapter 2 Slide 6
GDP PER CAPITAGDP 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
7
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
8
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
itemsChapter 2 Slide 9
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.releas
e/empsit.nr0.htm
Chapter 2 Slide 10
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 Slide 11
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 2 Slide 12
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 Slide 13
>> C H E C K P O I N T
1. Unemployment/GDP mapping activity.2. You are to label the blank US map with the
following information:1. Unemployment rate per state2. GPD per capita per state
3. Answer the following question based on your map:
1. What correlation can you see between the unemployment rates and the GDP per capita?
Chapter 2 Slide 14
>> C H E C K P O I N T
A cosmetic company purchased an automatic wrapping machine that wraps a pallet of boxes in 30 seconds. To
complete the same task manually, it would take an employee almost 3 minutes. This information would be useful for which measurement of economic activities?
1-Consumer spending
2-GDP
3-GDP per capita
4-Labor activities
Chapter 2 Slide 16
>> C H E C K P O I N T
Due to decreasing enrollment in a local school system, fewer teachers as employees are needed. As a result, over 100 teachers were released from their commitments. This information would be useful for
which measurement of economic activities? 1-Consumer spending
2-GDP
3-GDP per capita
4-Labor activities
Chapter 2 Slide 17
>> C H E C K P O I N T
In a hypothetical economy, only 40 people were included and 15 pizzas were produced last year
at $7 dollars each. This information would be useful for which measurement of economic
activities? 1-Consumer spending
2-GDP
3-GDP per capita
4-Labor activities
Chapter 2 Slide 18
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.
INVESTMENT ACTIVITIES
Chapter 2 Slide 20
• 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.
INVESTMENT ACTIVITIES, CONT’D.
Chapter 2 Slide 21
Capital Projects involve
spending by businesses for items such as
land, buildings, equipment,
and new products.
Comes from 3 main
sources:
Personal savings
Stock investment
s
Bonds
PERSONAL SAVINGS
Chapter 2 Slide 22
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 GrowthCompanies 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.
THE STOCK MARKET
Chapter 2 Slide 23
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
THE BOND MARKET
Chapter 2 Slide 24
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.
BORROWING ACTIVITIES
Chapter 2 Slide 25
Credit is often referred to as “Buy now, pay
later”
Borrowing can have an
important economic influence
Borrowing
Government Debt
Business Debt
Consumer Debt
GOVERNMENT DEBT
Chapter 2 Slide 26
People expect services from federal, state, and local
governments.
New schools
Highways
Public buildings
Parks
GOVERNMENT DEBT, CONT’D.
Chapter 2 Slide 27
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.
BUSINESS DEBT, CONT’D
Chapter 2 Slide 29
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.
CONSUMER DEBT, CONT’D
Chapter 2 Slide 31
ConvenientImportant for economic growth
Overuse = financial difficultiesCan result in legal action or other trouble
>> C H E C K P O I N T
If an economist researches annually the total value of homes built, this information would be useful for which measurement of
economic activities? a) Consumer Spending
b) GDPc) Investment Activities
d) Labor Activities
Chapter 2 Slide 34
>> C H E C K P O I N T
When a government agency reports annually the total amount spent to pay
employees, this information is useful for which measurement of economic activities?
a) Consumer Spending b) GDP
c) Investment Activitiesd) Labor Activities
Chapter 2 Slide 35
>> C H E C K P O I N T
Department stores report monthly to the state commerce office its total sales of
goods and services. This information would be useful for which measurement of
economic activities?a) Borrowing
b) Consumer Spending c) Investment Activities
d) Labor Activities
Chapter 2 Slide 36
>> C H E C K P O I N T
Mary is proud of saving over $43,000 in a bank. She knows that her saving money at the bank will provide funds for others to borrow money. This information would be
useful for which measurement of economic activities?a) Borrowing
b) Consumer Spending c) Investment Activities
d) Labor Activities
Chapter 2 Slide 37
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 Slide 38
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 Slide 39
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.
40
CONSUMER PRICES
Chapter 2 Slide 41
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
Deflation
A decrease
in the general level of prices
Usually occurs during
periods of recession
and depressio
n
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 Slide 42