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DEFINE 2-3 KEY TERMSPAGE 44

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

2-1 Assessments, #1-3, page 37

Chapter 2 Slide 15

>> 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

Chapter 2 Slide 28

Most businesses borrow money at some time.

Loans

Bonds

Mortgages

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

Chapter 2 Slide 30

Credit Cards

Auto Loans

Home Mortgages

CONSUMER DEBT, CONT’D

Chapter 2 Slide 31

ConvenientImportant for economic growth

Overuse = financial difficultiesCan result in legal action or other trouble

FUTURE ECONOMIC CHALLENGES

Chapter 2 Slide 32

Limited access to health care Traffic and crime

>> C H E C K P O I N T

2-3 Assessment, #1-3, page 47

Chapter 2 Slide 33

>> 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

>> C H E C K P O I N T

Chapter 2 Slide 43

What are future economic concerns for a country’s economy?