Transcript Economic Activity

Essential Standard 1.00
Understand the role of business in the global
economy.
1
Objective 1.02
Understand economic conditions
2
Topics
 Measuring
economic activities
 Classifying economic conditions
3
Measuring Economic Activities
4
Gross Domestic Product (GDP)
 Measurement
used to determine a
country’s overall economic output.
 A country’s total dollar value of all
final goods and services produced in
one year.
 Highly used
5
Gross Domestic Product (GDP)


GDP
Major categoriesof GDP
◦
◦
◦
◦
Individual spending
Business spending
Government spending
Exports & imports
Name some products or services you have
purchased or from which you have received
benefits.
 Which component of GDP would you classify
the product or service you named?

6
GDP per capita
GDP per capita – output per person
=_________GDP__________
Total Population
7
GDP Map
8
Labor Activities
 Unemployment
rate
 Productivity
9
Labor Activities
Unemployment rate
 The people in the labor force that are
unemployed

10
Labor Activities

Productivity means …???
◦ What can help you be more productive in a
computer lab?
◦ What can contribute to employees increasing
their production?
11
Consumer Spending
Measurement of
consumer
spending:

Personal Income

Retail Sales
12
Consumer Spending
Measurement of consumer
spending:

Personal Income
includes
◦ total wages and salaries
◦ Investment income
◦ Government payables

To individuals
13
Consumer Spending
Measurement of consumer
spending:

Retail Sales
◦ Includes the sales of
goods and services
purchased to indicate
the spending patterns
14
Investment Activities

The money used for capital projects comes
from three main sources:
• Personal savings
• The stock market
• The bond market
15
Investment Activities

The money used for capital projects comes
from three main sources:
• Personal savings

Businesses use money deposited in personal
savings accounts to buy equipment or
products for their businesses.
16
Investment Activities

The money used for capital projects comes
from three main sources:
• The stock market

Higher earnings for businesses increase their
value, which causes a demand for people
wanting to buy the businesses’ stock
17
Investment Activities

The money used for capital projects comes
from three main sources:
• The bond market

The bond market makes money available for
businesses and government to borrow money.
Bondholders earn interest on money loaned
to businesses and government.
18
Borrowing Activities …
 by
◦ Government
◦ Businesses
19
Borrowing Activities …
 by
◦ Government
Governments borrow money to finance
projects like schools, public highways, and
parks.
 If the government spends more than it
collects, then a budget deficit is resulted.

20
Borrowing Activities …
 By
◦ Businesses
Companies may borrow money to start up or
expand.
 Using borrowed funds efficiently can result in
an increase in sales and profits.

21
Measuring Economic Activities
GDP Per
capita
Consumer
Spending
22
Classification of
Economic Conditions
23
BUSINESS CYCLE – Movement of Economy from one phase to another!
24
Prosperity
Employment rate and demand for
products and services are high.
25
Prosperity
Employment rate and
demand for products
and services are high.
Recession
Unemployment rate is
increasing and
demand for products
and services are
lowering.
26
Prosperity
Employment rate and
demand for products
and services are high.
Recession
Unemployment rate is
increasing and
demand for products
and services are
lowering.
Depression
Unemployment rate is
high and demand for
products and services
is lowering.
27
Prosperity
Employment rate and
demand for products
and services are high.
Recession
Unemployment rate is
increasing and
demand for products
and services are
lowering.
Recovery
Depression
Unemployment rate is
high and demand for
products and services
is lowering.
Unemployment
rate is lowering
and demand for
products and
services is
increasing.
28
Very Important Business Terms Activity
29
Consumer Prices
Inflation
 Causes of inflation
 Consumer Price Index (CPI)
 Deflation
 Causes of deflation

30
Consumer Prices
 Inflation
is an upward movement in the
average level of prices.
◦ “Too many dollars chasing too few goods”

During an inflation, the demand for products
and services exceeds the supply, which may
cause an increase in prices.
31
Consumer Prices
 Causes
of Inflation
◦ The supply of money goes up.
◦ The supply of other goods goes down.
32
Consumer Prices
 Deflation, a
downward movement
in the average level of prices.

During deflation, the prices of products
and services are lowered, but people have
less money for purchases.
33
Consumer Prices

Cause of Deflation
◦ Demand for money goes down.
◦ Demand for other goods goes up.
34
Year
Income
Income
percent
change
from year 1
Gallon of
milk cost
Gallon of
milk cost
percent
change
from year 1
1
2
3
$36,000 $38,000 $21,000
n/a
5.6%
-42%
$2.49
$2.99
$3.19
n/a
20%
28%
Over a
three-year
period, how
has the
income
been
impacted by
the
cost of a
gallon of
milk?
35
Consumer Prices

The boundary between inflation and
deflation is price stability.
36
Consumer Prices

Consumer Price Index
◦ is a measure estimating the average price of
consumer goods and services purchased by
households.
◦ The percent change in the CPI is a measure
estimating inflation.
◦ It is one of the most closely watched national
economic statistics.
◦ Changes used to calculate inflation!
37
How to Calculate Inflation Rate
Inflation Rate=
 Change in Price index divided by
 Initial price index
 Times 100

38
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?
39
Interest Rates

Types:
◦ Prime rate - interest rate charged to
bank’s best customer
◦ Discount rate – interest rate offered by
the Federal Reserve to financial
institutions for loans
40
Interest Rates

Types:
◦ T-Bill Rate - the yield for short-term
(13 weeks) government debt.
◦ Treasury Bond Rate – the yield for
long-term government debt
41
Interest Rates

Types:
◦ Mortgage rate - the amount borrowers
pay for home loans.
◦ Corporate Bond Rate – the cost of
loans for large US corporations.
42
Interest Rates

Types:
◦ Certificate of Deposit Rate- paid for
deposits for a period of time (6, 12 or 18
months)
43
Interest Rates

Types:
◦ Certificate of Deposit Rate- paid for
deposits for a period of time (6, 12 or 18
months)
44
Interest Rates
• How do interest rates impact businesses?
• Higher interest rates for businesses
usually mean higher business cost.
45