THE ECONOMY AND YOU Chapter 8. LEARNING OBJECTIVES Explain how economic factors impact financial...
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Transcript of THE ECONOMY AND YOU Chapter 8. LEARNING OBJECTIVES Explain how economic factors impact financial...
THE ECONOMY AND YOUChapter 8
LEARNING OBJECTIVES
Explain how economic factors impact financial decisions
Understand how demographic changes will impact your future
Analyze how events in the national and global economy might affect you
OBJECTIVE 1Explain how economic factors impact financial decisions
ECONOMICS AND THE ECONOMY
ECONOMICS
The study of choices
People can’t have everything they want so they must decided what they will seek, how they will seek it and what they will do without
It impacts financial decisions by affecting certain decisions you may make, such as what to invest in
THE ECONOMY
The system in which individuals, businesses, governments, and the world interact as a whole
HOW THE ECONOMY IS BROKEN DOWN
MACROECONOMICS
Deals with broad issues that impact the economy as a whole Countrywide Global
MICROECONOMICS
Focuses on the study of individual choices or decisions made by smaller units Individual households Single companies
OBJECTIVE 2Understand how demographic changes will impact your future
DEMOGRAPHICS
DEMOGRAPHICS is the study human populations1. Race2. Gender3. Age 4. Level of education
Demographics helps predict certain needs in advance
Example: If grade school enrollment is increasing, eventually high school enrollment will, too. A plan will need to be made for that, more classrooms, more teachers, etc.
Silent Generation Baby
BoomersGeneration X
Generation XY Cusp Generation
YGeneration Z
1925 – 1945 1946 – 1964 1964 – 1981 1975 - 1986 1981 - 2001 2001 and on
“MTV Generation”
“Echo Boomers” “Millennials”
“Homelanders”“Vista Generation”
NAMES USED TO DESCRIBE MAJOR DEMOGRAPHIC GROUPS OR TRENDS
THE “GRAYING OF AMERICA”
WHAT IT IS: the number of older people in the US is increasing at a faster rate that that of other age groups
WHY IS IT HAPPENING? The baby boom which was a period of very high birthrates after WWII
Baby boomers represent 1/3 of the workforce today and will all start retiring soon
Baby Boomers will be retiring soon and it may affect what job choice you make
IMMIGRATION
Immigration changes have produced some important demographic changes in the US
It’s altering the makeup of the population and creating new job opportunities
Hispanic Americans are rapidly growing share in the population
Jobs that cater to the needs of Hispanic Americans will be in high demand (companies will want employees who speak Spanish)
Younger people may seek a career or make investments in industries that serve the changing population
DEMOGRAPHIC TRENDS THAT WILL AFFECT THE US IN UPCOMING YEARS
1. The retirement of the members of the Baby Boom
2. The entry of members of Generation Y into the workforce
3. The growing population of Hispanic- Americans
SOCIAL SECURITY
When the United States government first established the Social Security Fund, there were MANY people paying into the system and FEW people drawing money out.
WHAT THAT MEANS TO YOU:1. Your FICA taxes may increase2. Your future Social Security
benefits may decrease3. You may have to be
responsible for funding most OR all of your own retirement
OBJECTIVE 3Analyze how events in the national and global economy might affect you
GDP
GDP = Gross Domestic Product DEFINITION: the total dollar amount of all final goods and services
purchased within the nation’s borders in a given year Looking at the GDP and how it changes over time helps show the
strength of the economy (how the government measures economic activity)
Primary indicator used to gauge the health of a country’s economy
When the GDP is higher from one year to the next, it means businesses and individuals are selling more goods and services and the economy is growing
When the GDP is lower, it means fewer goods and services are being sold and the economy is shrinking
RECESSION V. DEPRESSION
RECESSION
A period of time in which the economy is shrinking
GDP decreased
FEWER goods being sold and HIGHER levels of unemployment
“Great Recession” was 2007 – 2009
In the Business Cycle:
Lowest point of recession = TROUGH
Highest point of recovery = PEAK
DEPRESSION
A severe recession
Risk of job loss is the greatest because many businesses are forced to lay off workers
*Business Cycle: one full period of economic growth followed by a period of recession*
INFLATION AND PURCHASING POWER
INFLATION = a sustained increase in the general level of prices (things get more expensive)
REDUCES the value of your money
The purchasing power of your money goes down – examples: gas prices, movie tickets, education, etc.
How do you measure inflation? Economists look up prices on a set of 300 goods/services in a “market basket” of
goods Market basket includes: clothing, groceries, electronics, haircuts, medical care, and
education This price data is then used to construct the consumer price index or (CPI = the
formal measure of inflation that tells whether things overall are more expensive now than in the past)
With inflation, $20 will not buy you the same amount of things it did the year before
GLOBALIZATION
GLOBAL ECONOMY – the world in which economies of all countries interact and depend on each other because the world is shrinking
Top 3 Exports/Imports for US = Canada, Mexico, and China
In 2011, the US imported the highest value of goods from China
Companies close American factories and open new factories abroad because they can pay those employees lower wages and that country has more relaxed pollution controls than the US
Recognize what skills are in demand in America that CAN NOT be outsourced Plumbers, electricians, mechanics, health-care-related jobs As opposed to technical support, which can be outsourced
PROTECTING YOURSELF FROM INFLATION
Receiving regular increase in paychecks
Employers give their employees a standard “cost of living” increase which softens the impact of inflation
Hold some of your wealth in assets that tend to increase in value by more than the rate of inflation (example: real estate – which is risky)