Transcript Chapter 2 Economic Activity

Chapter 2
Economic Activity
2-1 Measuring Economic Activity
2-2 Economic Conditions Change
2-3 Other Measures of Business
Activity
Introduction to Business
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GROSS DOMESTIC PRODUCT (GDP)
-
the dollar value of all final goods & services
produced in a country during one year.
 Components of GDP
1.
2.
3.
4.
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 the country
 Comparing GDP – per capita or output per person.
GDP
per capita is calculated by dividing GDP by the total population.
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Comparison of GDP in
Selected Countries
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Many nations do not have abundant
resources and experience economic
bad times.
An increase in GDP per capita means that
an economy is growing.
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>> C H E C K P O I N T
What types of economic activities are not
included in GDP?
Only final goods, such as cars, are counted
when you measure GDP.
Intermediate goods used in manufacturing,
such as steel and fabrics, are not included.
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LABOR ACTIVITIES
 Employment – more than 130 million people
work in the United States.
Unemployment rate is the portion of people in the labor force
who are not working. People are considered to be
“unemployed” if they are looking for work and willing to work but
unable to find a job.
 Productivity- is the production output in
relation to unit of input, such as a worker.
 The main cause of unemployment is reduced
demand for the goods and services being
provided by various workers.
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What are ways to increase productivity?
Improvements in capital resources
(equipment and technology), worker
training, and management techniques can
result in more output per worker.
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CONSUMER SPENDING
 Personal income – refers to salaries and
wages as well as investment income and
government payments to individuals. Helps
buy goods & services.
 Retail sales – sales of durable & nondurable
goods bought by consumers. Is an indicator
as to consumer spending patterns in the
economy.
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What are the main items measured for
estimating retail sales?
Automobiles
Restaurants
Building Materials
Department Stores
Furniture
Food Stores
Gasoline
Drug Stores
Clothing
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THE BUSINESS CYCLE –
The movement of the economy from one
condition to another and back again.
 Prosperity - the period in which most
people who want to work are working,
businesses produce goods & services
in record numbers, wages are good,
and the rate of GDP growth increases.
 Recession - the period in which
demand begins to decrease,
businesses lower production,
unemployment begins to rise, and GDP
growth slows for two or more quarter of
the calendar year.
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 Depression – the phase marked by a
prolonged period of high
unemployment, weak consumer sales,
and business failures. – (Great
Depression was in 1930-1940)
 Recovery – the phase where
unemployment begins to decrease,
demand for goods and services
increases, and GDP begins to rise
again.
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CONSUMER PRICES
 Inflation – the increase in the general level of prices.
Buying power of dollar decreases. Most harmful if
living on fixed incomes. Inflation can sometimes
occur when the demand for goods and services is
greater than the supply – this cans sometimes
stimulate economic activity if it is kept relatively low.
 Causes of inflation – Demand for goods is greater
than supply. When a large supply of money, earned
or borrowed, is spent for goods that are in short
supply – prices increase.
 Measuring inflation – mild inflation 2 or 3% can
stimulate economic growth.
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 Consumer price index is the number
that compares prices in one year with
some earlier base year.
 Deflation – decrease in the general
level of prices. Occurs during periods of
recession and depression. Prices of
products are lower, but people have
less money to buy them.
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INTEREST RATES
 Types of interest rates
 Prime rate – banks make available to their
best business customers, such as large
corporations
 Discount rate – financial institutions are
charged to borrow funds for the Federal
Reserve Bank –
 T-bill rate – yield on short-term (13 week)
U.S. government debt obligations
 Treasury bond rate – yield on long-term (20
year) U.S. Government debt obligations
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 Mortgage rate – amount borrowed for
purchase of new home
 Corporate bond rate – cost of borrowing for
large U.S. Corporations
 Certificate of Deposit rate – is the rate for sixmonth deposits at savings institutions.
 Changing interest rates – changes because
of many factors – the supply and demand for
money is the major influence. When
borrowing by consumers, businesses, and
government increases, interest rates will
likely rise.
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INVESTMENT ACTIVITIES
 Personal savings
 The stock market
 The bond market
A well-run business may need to borrow
money!
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Name some examples of capital projects.
Businesses spend money on: land, buildings, equipment, and
new products.
Money comes from three main sources:
personal savings – in United States personal savings rate is low.
stock investments or equity – ownership in a corporation
Bonds – represents debt for an organization – you buy bond –
you are creditor. You have lent money to the organization. The
bondholders are paid interest for the use of their money.
What business sells stock? A Corporation
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BORROWING
 Government debt –
Budget surplus – Gov. spends less than
takes in.
Budget deficit – Gov. spends more than takes
in.
National debt – The total amount owed by the
federal government
 Business debt – loans, bonds, and
mortgages
 Consumer debt – credit cards, auto loans,
home mortgages
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FUTURE ECONOMIC
CHALLENGES
 Limited access to health care
 Need for proper housing for many
people
 Traffic and crime
 Unemployment
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Words to Know….
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Unemployment rate
Productivity
Personal income
Depression
Inflation
Prosperity
Stock
Recession
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