Download How do we mea sure economic activity

How much are we producing and
buying????


This is one way to measure
a country’s economic
growth. It is the total value
of all the goods and
services produced in a
country in a year.
It consists of 4 things:
1.
2.
3.
4.
Spending on food,
clothing, housing, and
other aspects
Business spending on
buildings, equipment,
and inventory
Government spending
Net Exports (Exports
minus Imports)
 The
more goods and
services produced,
the healthier an
economy is thought
to be; but GDP
doesn’t tell the whole
story.
 GDP Per Capita tells
us the GDP per
person in a country.
GDP/# of people
 Unemployment
rate- portion of people in
the labor force who are not working (Labor
force is all people 16+ yrs old)
 Productivity- How much output you are
getting from a worker ( increased by better
technology & equipment, worker training, or
management techniques)
 Consumer Spending- when personal
income (money you earn) is spent on retail
sales (durable and nondurable goods),
economic growth is thought to be occurring.
 Looking
at the economic state of the
country throughout history reveals many
ups and downs. Can you think of any
major ones???

This cycle is referred to as the business
cycle.
 Prosperity-
unemployment is down,
businesses produce goods and services
in record numbers, wages are good, and
the rate of GDP growth increases.
 This is the high point of the business
cycle
 Recession-
demand begins to decrease,
business lower production,
unemployment begins to rise, and GDP
growth slows for at least 2 quarters
 May not last too long or be too serious,
but has a big impact (ripple effect)
 Depression-
prolonged period of
unemployment, weak consumer sales,
and business failures
 Worst one ever was in 1930-1940, The
Great Depression. 1 in 4 people in the
work force were unemployed
 What things can help counteract a
Depression?
 Recovery-
unemployment begins to
decrease, demand increases, and GDP
begins to rise
 Can occur slow or fast.
 It is the road back to prosperity
 Inflation-
Increase in the general level of
prices
 Inflation decreases buying power
 EX: if the price of something increased
5% during the year, things that were $100
would now be $105
 Who
Does This Affect the Most???
 Shortage. When
money is spent on goods
that are in short supply…inflation
 Even though wages tend to increase also,
they can’t keep up with price.
 With fast, high inflation, it is hard to
maintain the standard of living
 One
of the most common tools for
measuring inflation is CPI or Consumer
Price Index.
 Price Index- number that compares prices
in one year to prices in some earlier base
year
 Disadvantages: PI only uses certain items to
measure inflation. So if the cost of food, gas,
and health care increase faster than
nonessentials measured by the PI, then the
reported inflation rate will be much lower
than actual cost-of-living increase
 It’s
a decrease of the general level of
prices
 Occurs during recession and depression
in order for companies to keep selling
stuff
 When
People, business, or countries
borrow money, interest is the amount they
pay for that privilege.
 A higher interest rate means higher cost
of doing business.
 As a consumer you are affected by
interest rates when you borrow or save
money
 This is why credit is important. People
with bad credit pay a higher interest rate
 Prime
Rate- the rate banks make available
to their best business customers, such as
large corporations
 Discount Rate- the rate financial institutions
are charged to borrow funds from the
federal reserve banks
 T-Bill- the yield on short term U.S.
Government debt obligations (13-week)
 Treasury Bond Rate- the yield on long term
U.S. Government debt obligations (up to 30
years)
 Mortgage
Rate- Interest rate people pay
that borrow money to buy a house
 Corporate Bond Rate- Cost of borrowing
from large corporation
 Certificate of Deposit Rate- Rate for time
deposits at savings institution
 The
supply and demand of money- as
people save more, there is more money
for banks to lend out and rates go down.
As more people borrow money rates tend
to go up.
 Interest
rates help stimulate the economy
and affect many aspects of business,
including investments.
 Investments
come in many forms. You are all
making an investment in your futures now
by attending school.
 Capital Spending (Capital Projects)spending by businesses for items such as
land, buildings, equipment, and new
products
 The money for these kinds of purchases
come from three types of investments:
1.
2.
3.
Personal Savings
Stock Investments
Bonds
 This
is a major source of investment
capital
 Companies use the money you put into
your savings accounts and other financial
institutions to buy expensive equipment
and other things
 In return, you are paid interest on the
amount of money you deposit and leave
in your savings account
 Companies
get capital to spend by
selling very small pieces of their
company in the form of stock
 The value of the stock can go up or down
depending on many factors, but it is
essentially tied to how the company does
financially
 This
is a debt owed by a company.
 The company borrows money from you
and in return pays you back, plus interest
when the bond matures
 The Government has used this quite a bit
when they need money