Transcript Economic Activity

CHAPTER
2
SLIDE 1
CHAPTER
2
Economic Activity
2-1
Measuring Economic Activity
2-2
Economic Conditions Change
2-3
Other Measures of Business Activity
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Principles of Business, 8e
CHAPTER
2
SLIDE 2
Environment is a critical variable for Businesses
You are standing in front of the door that leads to your destination
What do you need for the trip? Discuss options
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CHAPTER
2
SLIDE 3
Is this person prepared for the
environment?
What will happen to him over time?
1 hour? 1 day? 1 week?
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2-1
Measuring
Economic Activity
Goal 1 Define gross domestic product.
Goal 2 Describe economic measures of
labor.
Goal 3 Identify economic indicators for
consumer spending.
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SLIDE 4
CHAPTER
2
SLIDE 5
KEY TERMS
● Gross Domestic Product (GDP)
● GDP per capita
● unemployment rate
● productivity
● personal income
● retail sales
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2
GROSS DOMESTIC PRODUCT (GDP)
SLIDE 6
● GDP is the total value of all final goods
and services produced in a country during
one year.
● Economic growth refers to a steady
increase in the production of goods and
services in an economic system.
● The more goods and services that are
produced, the healthier an economy is
considered to be
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Components of GDP
2
SLIDE 7
● 1. Consumer spending for food, clothing,
housing, and other goods and services
● 2. Business spending for buildings,
equipment, and inventory items
● 3. Government spending to pay
employees and to buy supplies and other
goods and services
● 4. The exports of a country minus the
imports into the country
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Comparing GDP
2
SLIDE 8
● Another way to measure economic growth
is GDP per capita or output per person.
GDP per capita is calculated by dividing
GDP by the total population.
● GDP is compared to previous measures to
determine the direction of the economy.
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CHAPTER
GROSS DOMESTIC
PRODUCT (GDP)
2
SLIDE 9
● Components of GDP
● Consumer Spending 60-65%
● Business Spending 18-20%
● Government Spending 18-20%
● Net Exports (5%)
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COMPARISON OF GDP IN
SELECTED COUNTRIES
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2
SLIDE 10
Principles of Business, 8e
CHAPTER
COMPARING GROSS
DOMESTIC PRODUCT
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2
SLIDE 11
Principles of Business, 8e
CHAPTER
2
SLIDE 12
Checkpoint 
● What types of economic activities are not
included in GDP?
● GDP only applies to reported final goods and
services.
● Money earned for goods or services that are not
reported would not be included.
● Goods and services used in the manufacture of
other products are only counted once—in the final
product.
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CHAPTER
2
SLIDE 13
LABOR ACTIVITIES
● Employment
● Productivity
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2
SLIDE 14
Employment
● The labor force consists of all people
above age 16 who are actively working or
seeking work.
● Students, retired people, and others who
cannot or do not wish to work are not part
of the labor force.
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2
SLIDE 15
LABOR ACTIVITIES
● Employment
● Unemployment Measurement Criteria
● Not all unemployed people are counted
● Are you unemployed if you are looking for work but
cant find a job?
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Productivity
2
SLIDE 16
● is the production output in relation to a unit
of input, such as a worker.
● Improvements in capital
resources(equipment and technology),
worker training, and management
techniques can result in more output per
worker.
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Productivity cont.
2
SLIDE 17
● An ability to produce more goods and
services makes it possible to reduce the
number of hours in a workweek.
● In the 1890s, the average worker in the
United States put in about 60 hours a
week.
● Today, the average workweek for many
factory and union-contracted jobs has
decreased to less than 40 hours
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SLIDE 18
Productivity cont.
● If wages increase faster than gains in
productivity, the cost of producing goods
increases and prices rise.
● Even though workers earn more money,
they are not able to improve their standard
of living because of rising prices.
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2
SLIDE 19
Checkpoint 
● How can productivity be increased?
● Productivity can be increased by
improvements in capital resources
(equipment and technology), worker
training, and management techniques.
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CONSUMER SPENDING
2
SLIDE 20
● Personal income refers to salaries and wages
as well as investment income and
government payments to individuals.
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SLIDE 21
RETAIL SALES
● Retail sales are the sales of durable and
nondurable goods bought by consumers.
● Retail sales are an indicator of general
consumer spending patterns in the
economy.
● Increasing retail sales usually points
toward economic growth.
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SLIDE 22
Checkpoint 
● What are the main sources of personal
income?
● Sources of personal income include wages,
salaries, investment income, and
government payments.
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2-2
Economic
Conditions Change
Goal 1 Describe the four phases of the
business cycle.
Goal 2 Explain causes of inflation and
deflation.
Goal 3 Identify the importance of interest
rates.
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SLIDE 23
CHAPTER
2
SLIDE 24
KEY TERMS
● business cycle
● prosperity
● recession
● depression
● recovery
● inflation
● price index
● deflation
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SLIDE 25
THE BUSINESS CYCLE
● Business cycles are the recurring ups and
downs of GDP in a country. There are four
stages in the business cycle
● Prosperity
● Recession
● Depression
● Recovery
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SLIDE 26
Prosperity
● is a period in which most people who want
to work are working,
● businesses produce goods and services in
record numbers, wages are good
● rate of GDP growth increases.
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SLIDE 27
Recession
● is a period in which demand begins to
decrease, businesses lower production,
unemployment begins to rise
● Recession is defines as: GDP growth
slows for two consecutive quarters of the
calendar year.
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SLIDE 28
Recession ripple effect
● This phase may not be too serious or last
very long, but it often signals trouble for
workers in related businesses.
● For example, if people buy fewer cars, a
number of workers who make batteries,
tires, and other parts may lose their jobs.
● This drop in related businesses is called
the ripple effect.
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SLIDE 29
Depression
● is a phase marked by a prolonged period
of high unemployment, weak consumer
sales, and business failures.
● Many business failures
● GDP falls rapidly
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SLIDE 30
Recovery
● is the phase in which unemployment
begins to decrease, demand for goods
and services increases.
● GDP begins to rise again.
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Checkpoint 
2
SLIDE 31
● What are the four phases of the
business cycle?
● Prosperity
● Recession
● Depression
● Recovery
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CONSUMER PRICES
2
SLIDE 32
● Inflation
● is an increase in the general level of prices.
● Measuring inflation
● Most people think inflation is harmful.
Consumers have to pay higher prices for the
things they buy. Therefore, as workers, they
have to earn more money to maintain the
same standard of living.
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SLIDE 33
Inflation cont.
● Causes of inflation - One type of inflation
occurs when the demand for goods and
services is greater than the supply
● Even though wages (the price paid for
labor) tend to increase during inflation,
prices of goods and services usually rise
so fast that the wage earner never seems
to catch up.
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Inflation cont.
● Is most harmful to people living on fixed
incomes (retired on SS).
● Some inflation, 2-3 %, is good for the
economy
● The Consumer Price Index CPI is used to
calculate inflation
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Deflation
2
SLIDE 35
● Means a decrease in the general level of
prices. The opposite of Inflation.
● Prices of products are lower, but people
have less money to buy them so there is
no benefit to consumers
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2
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Checkpoint 
● What are the main causes of inflation?
● Inflation is an increase in the general level
of prices that occurs when the demand for
goods and services is greater than supply.
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2
SLIDE 37
INTEREST RATES
● Interest rates represent the cost of money
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Types of interest rates
CHAPTER
2
SLIDE 38
● The prime rate is the rate banks make
available to their best business customers,
such as large corporations.
● The discount rate is the rate financial
institutions are charged to borrow funds
from Federal Reserve banks.
● The T-bill rate is the yield on short term
(13-week) U.S. government debt
obligations.
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Types of interest rates
CHAPTER
2
SLIDE 39
● The treasury bond rate is the yield on longterm U.S. government debt obligations of up
to 30 years.
● The mortgage rate is the amount individuals
pay to borrow for the purchase of a new
home.
● The corporate bond rate is the cost of
borrowing for large U.S. corporations.
● The certificate of deposit rate is the rate for
time deposits at savings institutions.
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Changing interest rates
2
SLIDE 40
● Each day, the cost of money (interest)
changes because of various factors.
● The supply and demand for money is the
major influence on the level of interest
rates.
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2
SLIDE 41
Checkpoint 
● How do interest rates affect business
activities in our economy?
● Interest rates can encourage or discourage
borrowing and spending.
● Lower interest rates allow consumers greater
spending power, which increases demand,
productivity, and employment.
● Businesses often pass on the cost of higher
interest rates to consumers.
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2-3
Other Measures
of Business Activity
Goal 1 Discuss investment activities that
promote economic growth.
Goal 2 Explain borrowing activities by
government, business, and consumers.
Goal 3 Describe future concerns of economic
growth.
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SLIDE 42
CHAPTER
2
SLIDE 43
KEY TERMS
● capital spending
● capital project
● stock
● bond
● budget surplus
● budget deficit
● national debt
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Capital Spending
2
SLIDE 44
● Capital spending refers to money spent by
a business for an item that will be used
over a long period
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Capital Project
2
SLIDE 45
● Capital projects involve spending by
businesses for items such as land,
buildings, equipment, and new products.
● The money for capital projects comes
from three main sources: personal
savings, stock investments, and bonds.
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Capital Projects cont.
2
SLIDE 46
● A major source of investment funds is
personal savings. Companies use money
you deposit in a bank or other financial
institution. These funds provide the money
necessary for buying expensive equipment
or creating new products.
● In return, savers are paid interest on the
money they deposit.
● The savings rate of a country is an
important factor for economic growth.
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SLIDE 47
Stock
● Stock represents ownership in a
corporation.
● Stock ownership is commonly called
equity. This term means “ownership.”
● The value of your investment in a
company increases if the stock price goes
up in the Stock Market
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Bond
2
SLIDE 48
● Another investment activity involves the
sale of bonds.
● A bond represents debt for an
organization.
● If you purchase a corporate or government
bond, you are a creditor. This means you
have lent money to the organization.
● In return, bondholders are paid interest for
the use of their money.
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2
SLIDE 49
INVESTMENT ACTIVITIES
● Personal savings
● The stock market
● The bond market
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2
SLIDE 50
Checkpoint 
● Name some examples of capital
projects.
● Capital projects include the purchase of
any item a business will use over an
extended period of time such as land,
buildings, and equipment.
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2
SLIDE 51
BORROWING
● Government debt
● Business debt
● Consumer debt
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Government debt
2
SLIDE 52
● A government may spend less than it
takes in. When this occurs, a budget
surplus is the result.
● If a surplus exists, government may
reduce taxes or increase spending on
various programs.
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Government debt cont.
2
SLIDE 53
● A government may spend more than it
takes in. This situation is called a budget
deficit.
● This can lead to higher taxes or increased
borrowing by the government to fund its
programs
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National Debt
2
SLIDE 54
● Over time, deficits build up.
● The total amount owed by the federal
government is called the national debt.
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2
SLIDE 55
Business Debt
● Loans, bonds, and mortgages are
common borrowing methods used by
businesses. Most companies, large and
small, use debt at some time.
● Poor debt management can result in a
company going out of business.
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2
SLIDE 56
Consumer Debt
● People commonly use credit cards, auto
loans, and home mortgages to finance
their purchases. The use of credit can be
convenient.
● Careful use of credit can be important for
economic growth. In contrast, unwise
borrowing can result in legal action and
other trouble.
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2
SLIDE 57
Checkpoint 
● What is the cause of a budget deficit?
● A budget deficit occurs when a government
or organization spends more than it takes in.
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CHAPTER
FUTURE ECONOMIC
CHALLENGES
2
SLIDE 58
● Emerging markets
● Weak economies
● Consumer preferences and behavior
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Global Business Growth
2
SLIDE 59
● Expanded economic output results in more
goods and services.
● Global business growth is occurring in
emerging markets, places where consumer
incomes and buying power are increasing
because of economic expansion.
● With more jobs and more income for
workers, quality of life improves.
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SLIDE 60
Global Business Growth cont.
● Many countries lack the technology, education,
and business systems needed for economic
success.
● Today, businesses and other organizations
exist to help improve the situations in weak
economies. By providing training, technology,
loans, and other assistance, innovative
solutions for various economic problems.
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2
SLIDE 61
Checkpoint 
● What economic challenges do countries
face in the future?
● Future economic concerns for any country
include the ability to increase its output and
provide a means for its citizens to meet the
basic needs of food and shelter, adequate
health care, education, transportation,
employment, and safety.
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