Transcript Economic Activity

Essential Standard 1.00
Understand the role of business in
the global economy.
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Objective 1.02
Understand economic conditions
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Topics
• Measuring economic activities
• Classifying economic conditions
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Measuring Economic Activities
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Measuring Economic Activities
Gross Domestic Product (GDP)
• GDP: a country’s total dollar value of all final goods
and services produced in one year.
• The most commonly used measurement to determine
a country’s overall economic growth
Consumer Spending
Business (Investment) Spending
Government Spending
+(Exports - Imports)
----------------------------------Gross Domestic Product
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GDP per capita
GDP per capita = output per person
=
_________GDP__________
Total Population of the Country
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Standard of Living
Standard of living refers to the level of wealth, comfort,
material goods and necessities available to a certain
socioeconomic class in a certain geographic area. The
standard of living includes factors such as income, quality
and availability of employment, class disparity, poverty rate,
quality and affordability of housing, hours of work required to
purchase necessities, gross domestic product, inflation rate,
number of vacation days per year, affordable (or free) access
to quality healthcare, quality and availability of education, life
expectancy, incidence of disease, cost of goods and services,
national economic growth, economic and political stability,
political and religious freedom, environmental quality, climate
and safety. The standard of living is closely related to quality
of life.
Measuring Economic Activities
Labor Activities
• Unemployment rate: The percentage the total
labor force that are not working, but actively
seeking employment and willing to work.
• Productivity: A measure of output from a
production process, per unit of input
– Gains in Productivity Result in Record Output
– What can contribute to employees increasing
their production?
• Equipment, technology, training, management
Measuring Economic Activities
Labor Activities
– U.S. July 2011 rate => 9.1%
• 13.9M people are unemployed in the US
• http://www.bls.gov/web/laus/laumstrk.htm
– North Carolina’s July 2011 rate => 10.1%
• Over 471,000 people are unemployed in NC
• http://www.ncesc1.com/PMI/Rates/PressRelease
s/County/NR_July2011_CountyRates_M.pdf
– Robeson County July 2011 rate => 13.4%
US 10 Year Unemployment
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Measuring Economic Activities
Consumer Spending
Measurements of consumer
spending:
• Personal Income: an individual’s
total earnings from wages,
investment interest, and other
sources
• Retail Sales: sales of durable
and non durable goods and
services purchased by consumers
(autos, building materials,
furniture, gas, $ spent at
restaurants, etc)
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Measuring Economic Activities
Investment (for the future)
• The money used for capital projects (land, buildings,
equipment, research) comes from three main sources:
– Personal Savings
– The Stock Market
– The Bond Market
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Measuring Economic Activities
Investment (for the future)
Personal Savings:
• People and businesses deposit money in
bank savings accounts. Banks then lend
this money to businesses which use the
borrowed money to buy equipment or
products for their businesses.
• Savers, in turn, earn interest on money
used by companies and other individuals.
• What happens if people don’t save??
Measuring Economic Activities
Investment (for the future)
The stock market:
• Stock represents ownership in a
company. If a company wants to
expand, it can sell stock to raise
money.
• Higher earnings for businesses
increases their value, which
causes a demand for people
wanting to buy the businesses
stock.
Measuring Economic Activities
Investment (for the future)
The bond market:
– Bonds represent debt for a company.
If a company wants to expand, it can
sell bonds to raise money.
• Bondholders purchase the bonds,
and earn interest on the money they
have loaned to businesses and the
government.
• Eventually, the company pays the
bondholders back their money, with
interest.
Borrowing Activities …
Governments: If governments want to spend more
than they brings in through taxes and fees, they
may have to borrow money. This overspending is
known as a budget deficit. The amount by which
a government’s spending exceeds its income
over a particular period of time. Also called deficit
or deficit spending.
U.S. National Debt: www.usdebtclock.org
Borrowing Activities …
When the Government borrows money, it doesn’t go to the
bank and apply for a loan. It "issues debt." This means the
Government sells Treasury marketable securities such as
Treasury bills, notes, bonds and Treasury inflation-protected
securities (TIPS) to other federal government agencies,
individuals, businesses, state and local governments, as
well as people, businesses and governments from other
countries.
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Borrowing Activities …
Companies:
• Companies may borrow money to start up or
expand.
• Using borrowed funds efficiently can result in
an increase in sales and profits.
• Companies may borrow from a bank or sell
bonds.
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Measuring Economic
Activities
GDP Per
capita
Consumer
Spending
Classification of
Economic Conditions
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Situation
PROSPERITY
RECESSION
DEPRESSION
RECOVERY
Employment
trend
Labor: People who want
to work are working;
unemployment low
Wages: Good
Unemployment increases as
workers are laid off.
Supply and
demand of
goods and
services
trend/GDP
GDP: Increasing
Consumer Demand:
Increasing
Demand decreases as people Demand for products and
lose jobs;
services is very weak; GDP
GDP: growth slows for 2 or
falls rapidly
more quarters
Demand increases; GDP begins
to rise
Possible
actions of
businesses
Profits strong as is
production
Companies hiring &
expanding (Macy’s may
open more stores)
Businesses decrease
production as demand decre
ases; profits suffer
Businesses may strategize on
ways to stimulate demand for
goods & services
Businesses begin rehiring and
increasing production; companies
may again begin recruiting efforts
at colleges
Prolonged period of high
unemployment
Business failures and
closings increase;
companies make changes
(such as moving employees
from full time to part time to
decrease hours and reduce
benefits) just to stay open
PROSPERITY
4 Phases of the
Economic Cycle
DEPRESSION
Unemployment decreases
companies begin to rehire
workers
Prospersity:
-Unemployment remains low
-Strong consumer confidence about the future leads
to record purchases
-Businesses expand to take advantage of
marketplace opportunties.
-The decade-long run of economic prosperity in the
U.S. from the early 1990s to 2001 was one of the
longest in a century.
Recession:
-A cyclical economic contraction that lasts for six
months or longer
-Consumers frequently postpone major purchases
and shift buying patterns toward basic, functional
products carrying low prices.
-Businesses mirror these changes in the
marketplace by slowing production, postponing
expansion plans, reducing inventories, and often
cutting the size of their workforce.
Depression:
- When the economic slowdown continue in a
downward spiral over an extended period of
time, the economy falls into depression.
- The Great Depression of the 1930’s
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Recovery:
-The economy emerges from recession and
consumer spending picks up steam.
-Even through business often continue to rely on
part time and other temporary workers during the
early stages of a recovery, unemployment begins
to decline, as business activity accelerates and
firms seek additional workers to meet growing
production demands.
-Gradually, the concerns of recession begin to
disappear, and consumers start purchasing more
discretionary items such as vacations and new
computer equipment.
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Consumer Prices
•
•
•
•
•
Inflation
Causes of inflation
Consumer Price Index (CPI)
Deflation
Causes of deflation
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Inflation:
-The rate at which the general level of prices
for goods and services is rising
-As inflation rises, every dollar will buy a
smaller percentage of a good.
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Interest Rates
• Types:
–
–
–
–
–
–
–
Prime rate
Discount rate
T-bill rate
Treasury bond rate
Mortgage rate
Corporate bond rate
Certificate of deposit rate
What is the primary
purpose of each?
• How do interest rates impact businesses?
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