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Bell Ringer 1 Analyze Career Opportunities in… BUSINSES DEVELOPMENT • Use the internet to learn more about careers in business and economic development. Choose one of the job titles listed and answer the following questions. 1. What is the employment outlook for careers in this field? 2. Is this a career that interests you? What can you do now to help prepare yourself for this career? *Go to www.bls.gov and search the Occupational Outlook Handbook • Economist • Transportation Engineer • Urban and Regional Planner • Survey Researcher • Statistician • Budget Analyst • Microloan Officer Economic Activity Chapter 2 Today’s Goals • Define gross domestic product (GDP) and GDP per capita 2-1 MEASURING ECONOMIC ACTIVITY Economic Growth • A steady increase in the production of goods and services in an economic system • Government collects information from producers to estimate output Gross Domestic Product (GDP) • Total dollar value of all final goods and services produced in a country during one year Consumer Spending Exports Imports Components of GDP Government Spending Business Spending GDP • The more the goods and services produced, the healthier an economy is considered to be. • If GDP increases from year to year, this usually signals that an economy is growing and is healthy. GDP per Capita • Output per Person • GDP ÷ Total Population = GDP per Capita GDP per Capita • An increase in GDP per capita means that an economy is growing • A decrease may mean that an economy is facing difficulties Use the internet to obtain the GDP and population statistics for 3 countries. Use the data to calculate the GDP per capita for each country. Show your work. Explain the differences among the countries. Today’s Goals • Describe economic measures of labor • Identify economic indicators for consumer spending Workers of a country contribute to the economy… • Over 155 million people work in the US to create needed goods and services • Wages earned (paychecks) are spent to create demand for items Labor Activities • Measured in two areas: • Employment • Productivity Labor Force • All people above age 16 who are actively working or seeking work Unemployment Rate • portion of people in the labor force who are not working • Unemployed = over 16, looking for work and willing to work but unable to find a job Main Cause of Unemployment Demand For Example… Productivity production output in relation to a unit of input, such as a worker For Example… Doug earns $25/hour. He can complete 2 tax returns per hour at $150 each. How would you measure his output in relation input? What motivates you to work harder and faster? How can you increase output per worker? Productivity If wages increase faster than gains in productivity, will prices increase or decrease? Why? Increase Because the cost of producing goods increases. Labor Activities Trivia • In the early 1890s, the average employee in the United States worked about how many hours per week? 60 Hours • What is the average number of hours worked per week today? 40 Hours Goal 2 • The two ways we measure labor are… • Employment • Productivity Consumer Spending • Measured in two areas: • Personal Income • Retail Sales Personal Income Salaries and wages as well as investment income and government payments to individuals Retail Sales sales of durable and nondurable goods bought by consumers • Measured monthly by USDC • Include the following: • • • • • • • • • Automobiles Building materials Furniture Gas Clothing Restaurants Department stores Grocery stores Drug stores NONDURABLE GOODS Retail Sales = Economic Growth Goal 3 • Economic indicators for consumer spending are… • Personal Income • Retail Sales Use descriptive words and pictures to design a collage that illustrates the ways to measure economic activity. Go to www.photovisi.com to create and print your collage. You must communicate your understanding of the topic through your collage. 10 Pictures 3 Terms Bell Ringer 2 1.What is the current unemployment rate? 2. What is the highest and the lowest it has been over the past 10 years? * Go to www.bls.gov to research the topic 2-2 ECONOMIC CONDITIONS CHANGE Today’s Goals Describe the four phases of the business cycle Explain causes of inflation and deflation The Business Cycle Movement of the economy from one condition to another and back again, recurring ups and downs of GDP • 4 phases: • Prosperity • Recession • Depression • Recovery Prosperity aka Expansions or Booms • Period in which most people who want to work are working, businesses produce goods and services in record numbers, wages are good, and rate of GDP growth increases • Highest point of the business cycle Recession • Period in which demand begins to decrease, businesses lower production, unemployment begins to rise, and GDP growth slows for at least 2 quarters (6 months) • Signals trouble for workers in related businesses, ripple effect The Great Recession 2007-2009 • Unemployment rose from 4.7% in November 2007 to peak at 10% in October of 2009 Depression • Prolonged period of high unemployment, weak consumer sales, and business failures • GDP falls rapidly The Great Depression 1930-1940 • 25% of US labor force was unemployed, scarcity for many Recovery • Unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise • May lead back to Prosperity Goal 1 Prosperity Recovery The Business Cycle Depression Recession Consumer Prices Inflation An increase in the general level of prices Causes of Inflation • Demand for goods and services is greater than supply • If wages go up faster than prices, businesses tend to hire fewer workers and so unemployment worsens (increases) Name something you regularly buy that has increased in price while decreasing in size. How does this affect your decision to purchase the item? Measuring Inflation • Mild inflation(2 or 3 percent a year) can stimulate economic growth Inflation is harmful to… • People living on fixed incomes • Retired people • Those whose income does not change Price Index • Number that compares prices in one year with prices in some earlier base year • For example: 5% increase makes something that cost $100 last year, now $105 Cost of Living Year Inflation Rate 1950s-1960s 1-3% 1970s-1980s 10-12% Deflation A decrease in the general level of prices • Usually occurs in periods of recession and depression Goal 2 What is the main cause of inflation? Demand for goods and services is greater than supply Go to www.bls.gov Click Subject Areas > Inflation & Prices Overview, and take a look at the different price indexes Click CPI inflation calculator • Use the calculator to find the buying power of $100 in 2014 compared to the year you were born and years before that. • Write a one paragraph summary that relates your findings to inflation or deflation and how this will affect you as a consumer. Bell Ringer 3 1.What is a credit score? 2. List 3 things you can do to help your credit score. 3. List 3 things you can do to hurt your credit score. Today’s Goals Identify the importance of interest rates Interest Rates • Represent the cost of money • Higher interest rates mean higher business costs • Lower interest rates = consumer spending power which increases demand, productivity, and employment Interest Rates • People with poor credit ratings pay a higher interest rate than people with good credit ratings Types of Interest Rates • Prime Rate – rate commercial banks make available to their best business customers, such as large corporations • Discount Rate – rate financial institutions are charged to borrow funds from Federal Reserve banks • 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 Types of Interest Rates • Mortgage Rate – amount individuals pay to borrow for the purchase of a new home • Corporate Bond Rate – cost of borrowing for large U.S. corporations • Certificate of Deposit Rate – rate for time deposits at savings institutions Influence on Interest Rates • Supply and demand for money • As amounts saved increase, interest rates decrease (banks have more money) • As borrowing increases, interest rates increase (banks have less money) Bell Ringer 4 • Go to the following website and review the “Investing Your Money Basics” lesson. • http://money.cnn.com/magazines/money mag/money101/lesson4/index.htm • Take the test at the end of the lesson and record your results. 2-3 OTHER MEASURES OF BUSINESS ACTIVITY Today’s Goals Explain borrowing activities by government, business, and consumers Describe future concerns of economic growth Investment Activities • Capital Spending & Projects • The Stock Market • Personal Savings • The Bond Market Capital Spending money spent by a business for an item that will be used over a long period of time (more than one year) • Examples: • • • • Buildings Machinery Equipment Vehicles Capital Projects spending by businesses for items such as land, buildings, equipment, and new products • Money for Capital Projects comes from: • 1. personal savings • 2. stock investments • 3. bonds Personal Savings • Major source of investment funds for companies • Companies use money you deposit in a bank to buy expensive equipment or create new products • Savings rate is a factor for economic growth The Stock Market • Stock = ownership in a corporation • Equity = stock ownership • Stockholder = stock purchaser • Value of shares is affected by: • Supply and demand • Company earnings The Bond Market • Bond = debt for an organization • Creditor = lent money to the organization, bond purchaser • Creditors are paid interest for the use of their money Goal 1 • The money for capital projects comes from three main sources: • Personal Savings • The Stock Market • The Bond Market Borrowing • “Buy now, pay later” • Done by: • Governments • Businesses • Consumers • Influential on the economy Government Debt • Federal, state and local governments borrow to fund projects • Used for: • • • • New schools Public buildings Highways Parks Budget Surplus (under budget, extra money) • When a government spends less than it takes in • May lead to: • Tax reductions • Increased spending on programs Budget Deficit (over budget, overdrawn) • When a government spends more than it takes in • May lead to: • Tax increases • Cutbacks or termination of programs • Layoffs National Debt • Total amount owed by the federal government Business Debt • Loans • Bonds • Mortgages + Proper use of debt can help expand sales and profits - Poor use of debt can lead to going out of business Consumer Debt • Credit cards • Auto loans • Home mortgages • Improper use can result in financial difficulties and legal action • Careful use can result in economic growth Goal 2 • What is the cause of a budget deficit? • Government or organizations spend more than they take in THE END!!! Chapter 2 Test!!!