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CHAPTER 2
MEASURING ECONOMIC ACTIVITY
1.02 ~ ECONOMIC ACTIVITIES AND CONDITIONS
GROSS DOMESTIC PRODUCT (GDP)
• The total dollar value of all final goods and services
produced in a country during one year.
• http://www.bbc.co.uk/news/business-13200758
Chapter 2
Slide 2
COMPONENTS OF GDP
Consumer spending
for food, clothing,
housing, and other
spending
Business spending for
buildings, equipment,
and inventory items
Government spending
to pay employees and
to buy supplies and
other goods and
services
The EXPORTS of a
country LESS the
IMPORTS into a
country.
Chapter 2
Slide 3
NOT INCLUDED IN GDP
Value of the work
you do for yourself
NOTE: If GDP increases from
year to year, this usually
signals that an economy is
growing and is healthy.
Intermediate goods
used in
manufacturing,
such as steel and
fabrics.
Chapter 2
Slide 4
GDP PER CAPITA
GDP per
capita
output per person
= GDP ÷ Total
Population
Increase in GDP per
capita means
economy is growing
Decrease in GDP per
capita may mean
economy is having
trouble
5
MEASURING ECONOMIC ACTIVITIES
Labor Activities
• Employment
• Productivity
Consumer Spending
• Personal Income
• Retail Sales
Investment Activities
• Personal Savings
• The Stock Market
• The Bond Market
Borrowing Activities
• Government Debt
• Business Debt
• Consumer Debt
6
LABOR ACTIVITIES
The workers of a country
contribute to an economy in
several ways:
Create needed goods and
services
Wages received are spent to
create demand for various items
Chapter 2
Slide 7
LABOR ACTIVITIES ~ EMPLOYMENT
Unemployment
rate
Labor force
consists of all people above
age 16 who are actively
working or seeking
employment.
Portion of people in the labor
force who are not working
(must be looking for work and
able and willing to work)
Students, retired people, and
others who cannot or do not
wish to work are not part of
the labor force.
Main cause: reduced
demand for goods and
services
As of July 2011, US
Unemployment Rate = 9.1%
(Bureau of Labor Statistics)
• http://www.bls.gov/news.release
/empsit.nr0.htm
Chapter 2
Slide 8
LABOR ACTIVITIES ~ PRODUCTIVITY
Productivity
A vital
source of
economic
growth is an
increase in
output per
worker.
the production
output in relation
to a unit of input.
Can be
increased by:
Improvements in
capital resources
(equipment and
technology)
Worker training
Management
techniques
Chapter 2
Slide 9
CONSUMER SPENDING
Personal income
The money you
earn and spend
is one of the most
important factors
for economic
growth.
• The salaries and
wages as well as
investment income
and government
payments to
individuals.
Chapter 2
Slide 10
CONSUMER SPENDING
Measured on a monthly
basis by the U.S.
Department of
Commerce
Retail sales
The sales of durable and
nondurable goods bought by
consumers.
Main items measured include:
• Automobiles, Building Materials, Furniture,
Gasoline, Clothing
• Purchases from Restaurants, Department
Stores, Food Stores, Drug Stores
Chapter 2
Slide 11
LESSON 2-3
OTHER MEASURES OF BUSINESS
ACTIVITY
Goals
• Discuss investment activities that promote
economic growth.
• Explain borrowing activities by government,
business, and consumers.
• Describe future concerns of economic growth.
Chapter 2
Slide 1
INVESTMENT ACTIVITIES
Investing
for the
future can
happen in
several
ways.
• Your time in school is an
investment in your future
• Companies buying
buildings and equipment
• Capital spending –
money spent by a
business for an item that
will be used over a long
period
Chapter 2
Slide 13
INVESTMENT ACTIVITIES, CONT’D.
Comes from 3
main sources:
Capital Projects
involve
spending by
businesses for
items such as
land, buildings,
equipment, and
new products.
Personal
savings
Stock
investments
Bonds
Chapter 2
Slide 14
PERSONAL SAVINGS
Factor for Economic Growth
Companies use the money you
deposit to purchase expensive
equipment or for creating new
products and to loan out to other
people.
In return, savers are paid interest
for the use of this money.
Personal savings rate of the U.S. has been quite low in
recent years – as little as one percent
Why does this raise concerns?
• There is less money available for use by borrowers.
Chapter 2
Slide 15
THE STOCK MARKET
Many people
invest by
becoming part
owners of a
corporation.
Investors are
issued stock to
represent this
ownership.
Chapter 2
Supply and
demand are
major influencers
in stock prices
• If a company has
higher earnings, more
people will want to
buy its stock, which
causes the value to
increase
Slide 16
THE BOND MARKET
Another investment activity involves the
sale of bonds.
A bond represents debt for an
organization.
When you purchase a corporate or
government bond, you have become a
creditor.
•In return, you are paid interest for the use of your
money.
Chapter 2
Slide 17
BORROWING ACTIVITIES
Borrowing
Credit is often
referred to as
“Buy now, pay
later”
Borrowing can
have an
important
economic
influence
Government
Debt
Business
Debt
Consumer
Debt
Chapter 2
Slide 18
GOVERNMENT DEBT
People expect services from
federal, state, and local
governments.
New
schools
Highways
Public
buildings
Parks
Chapter 2
Slide 19
GOVERNMENT DEBT, CONT’D.
A government may
spend less than it
takes in – a budget
surplus is the result.
A government may
spend more than it
takes in – a budget
deficit is the result.
May cause a
reduction in taxes
or increased
spending
May cause an
increase in taxes
or reduced
spending
The total amount owed by the federal government is
called the national debt.
Chapter 2
Slide 20
BUSINESS DEBT
Most businesses borrow money at some time.
Loans
Bonds
Mortgages
Chapter 2
Slide 21
BUSINESS DEBT, CONT’D
Economic
decision-making
plays a major role
in how well
companies (both
large and small)
will manage their
debt.
Poor decisionmaking can lead
to debt problems
and business
failure.
Borrowing can be
helpful when funds
are used to
expand sales and
profits.
Chapter 2
Slide 22
CONSUMER DEBT
Credit Cards
Auto Loans
Home Mortgages
Chapter 2
Slide 23
CONSUMER DEBT, CONT’D
• Convenient
• Important for
economic growth
• Overuse = financial
difficulties
• Can result in legal
action or other
trouble
Chapter 2
Slide 24
FUTURE ECONOMIC CHALLENGES
Limited access
to health care
Traffic and
crime
Need for
proper housing
for many
people
Unemployment
Chapter 2
Slide 25
LESSON 2-2
ECONOMIC CONDITIONS CHANGE
Goals
• Describe the four phases of the business cycle.
• Explain causes of inflation and deflation.
• Identify the importance of interest rates.
Chapter 2
Slide 26
THE BUSINESS CYCLE
• Our economy has its ups and downs; seems
to run in cycles
• Good times
Bad times
Good times
• This movement of the economy from one
condition to another and then back again is
called a Business Cycle.
• Four phases
Chapter 2
Slide 27
Prosperity
•
Employment rate and
demand for products
and services are high.
•
Businesses continue
making profits.
Recession
•
Unemployment rate is
increasing and demand for
products and services are
lowering.
•
Businesses must strategize to
stimulate demand for products
& services.
Recovery
•
Unemployment rate is
lowering and
demand for products
and services is
increasing.
•
Business may increase
human capital.
Depression
•
•
Unemployment rate is high and
demand for products and
services is lowering.
Businesses try to maintain profits
or break even to avoid going
out of business.
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CONSUMER PRICES
An increase in
the general
level of prices.
Most harmful
to people
living on fixed
incomes –
retirees and
disabled
persons
Demand for
goods and
services is
greater than
supply causing
prices to rise
faster than
wages
Inflation
It now takes
more money
to buy the
same amount
of goods and
services
Buying power
of the dollar
decreases
Chapter 2
Slide 29
Deflation
A decrease in
the general
level of prices
Usually occurs
during periods
of recession
and
depression
Prices of
products are
lower, but
people have
less money to
buy them
Chapter 2
Significant
deflation
occurred in
the U.S. during
the Great
Depression of
the 1930s,
when prices
declined
about 25%.
Slide 30