Download 1.02 PowerPoint

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)

GDP – Highly used measurement to determine a
country’s overall economic output.


Country’s total dollar value of all final goods and services
produced in one year.
Major categories of GDP

Individual spending (food, clothing, housing)

Business spending (buildings, equipment and inventory
items)

Government spending (paying employees and buying
supplies and other goods and services)

Exports minus imports (goods and services that are sold to
other countries)
5
GDP per capita
GDP per capita – output per person
=_________GDP__________
Total Population
6
Labor Activities

Employment

How is employment included in measuring labor activities?



Unemployment rate includes the people of the labor force
that are looking for work, willing to work, and unable to find
work
What is the national unemployment rate? What is the state
unemployment rate?
Productivity

What can help you be more productive in a computer lab?

What can contribute to employees increasing their
production?

Equipment, technology, training, and management
7
Consumer Spending
Measurement of consumer spending:

Personal Income


The total wages and salaries plus
investment income and government
payments to individuals
Retail Sales

The sales of goods and services purchased
to indicate the spending patterns
8
Investment Activities

The money used for capital projects comes from three
main sources:

Personal savings

The stock market

The bond market
9
Investment Activities

How does each investment activity impact economic
growth?

Business use money deposited in personal saving accounts
to buy equipment or products for their businesses

Savers earn interest on money used by companies & other
individuals

The savings rate is an important factor for economic growth

Higher earnings for businesses increases their value, which
causes a demand for people wanting to buy the businesses
stock.

The bond market make available for businesses and
government to borrow money. Bondholders earn interest
on money loaned to businesses and government.
10
Borrowing Activities …


By

Government

Businesses
How can government borrowing lead to a budget deficit?


If the government spends more money than it collects, then a
budget deficit is resulted.
How can using borrowed money wisely impact businesses?

Companies borrow money to start up or expand

Using borrowed funds efficiently can result in an increase in
sales and profits.
11
Measuring Economic
Activities
GDP Per
capita
Consumer
Spending
12
Classification of
Economic Conditions
13
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
14
high and demand for
products and services
is lowering.
Unemployment
rate is lowering
and demand for
products and
services is
increasing.
Economic Conditions Change

What is inflation?


An increase in the
general level of prices.
What causes inflation?



The demand for
products and services
exceeds the supply,
which may cause an
increase in prices
Impacts buying power
by decreasing the
amount of power
What is deflation?


A decrease in the
general level of prices.
How do lower prices
impact deflation?

The prices of products
and services are
lowered, but people
have less money for
purchases.
15
Economic Conditions Change

What is Consumer Price Index (CPI)?


A number that compares prices in one year with some
earlier base year.
How is CPI inflation rate calculate?
Change in price index
Inflation rate =
X 100
Initial price index
16
Year
Income
Income
percent
change
from year 1
Gallon of
milk cost
Gallon of
milk cost
percent
change
from year 1
1
2
3
Over a
three-year
period, how
has the
$36,000 $38,000 $21,000
n/a
5.6%
-42%
$2.49
$2.99
$3.19
n/a
20%
28%
income
been
impacted by
the
cost of a
gallon of
milk?
17
Economic Conditions Change

What is interest rates?


The cost of borrowing money
How do interest rates impact businesses?

Higher interest rates for businesses usually mean higher
business cost.

When borrowing increases, interest rate are likely to rise
18