Download Economic Activity in a Changing World

Chapter 3
4 Types of Economy in USA
Agricultural – during Colonial era, people lived
off the land and were primarily farmers
2. Service – also in Colonial Eras, colonists
working together and often bartered for
necessary services
3. Industrial - rooted in mid-1800’s during
Industrial Revolution when society relied more
on machinery to produce goods
4. Information - Boomed around mid-1900s as
the Internet became integral part of doing
business
1.
Measuring Economic Activity
 Just like baseball stats measure a
players performance …….. figures
are used to measure economic
performance.
 GDP
 Unemployment Rate
 Rate of Inflation
 National Debt
Gross Domestic Product (GDP)
 The production of goods and services is the result
of all the economic activity in the country.
 Measure the final output of an economy… Measure
productivity - how many goods/services country
produces during a certain period of time
 Measure the value of the goods/services, to calculate the
GDP, Economists compute the sum of G/S in 4 areas:
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Consumer goods and services
Business goods and services
Government goods and services
Goods and services sold to other countries
Gross Domestic Product (GDP)
 GDP does not include G/S not
reported ….babysitting, mowing
lawns, daycare… or US owned plants
made in other countries
 The USA has a very high GDP
compared to other countries
 Higher Standard of Living – is the
amount of G/S the average citizen can
buy
 1990’s –GDP grew from $5.5 Trillion
to $9 Trillion
Unemployment Rate
 Measures the number of
people who are able to work
but don’t have a job during a
given period of time.
 Not as serious: Seasonal unemployment
 Serious unemployment: changes in industry
 New technology replaces workers, requires new skills
 Companies merge or restructure and downsize
 Worst type: entire economy slows down. Millions of
people in every industry lose their jobs,
unemployment may last until economy recovers
Rate of Inflation
 The increase in the cost of goods/services
Rate of Inflation
 WHY??? Different reasons….
 Economy too productive, more people working with
money …the more they spend…as demand goes
up…producers raise their prices….workers demand
higher wages….wages go up …producers raise prices if
this spirals out of control it may lead to hyperinflation
 Government allows too much money to circulate in the
economy
 Deflation – when supply of goods is greater than the
demand
Rate of Inflation
 The USA tries to maintain a slow
but steady rate of economic
growth to avoid inflation and
deflation.
 By controlling productivity and
keeping a certain number of people
unemployed
 Less risk of producers making too
many goods or workers demanding
higher wages.
National Debt
 Source of income are taxes
http://www.usdebtclock.org/index.html
 Government spends more for programs like defense, education,
and social programs than it collects in taxes…the difference is a
Budget Deficit.
 The gov’t borrows money from public, banks and foreign
countries….the total amount of money the gov’t owes is the
National Debt.
 Budget Surplus – gov’t’s revenue exceeds the
expenditures…but it will probably use the surplus to decrease
National Debt, decrease taxes, or increase social programs
The Business Cycle
 The rise and fall of economic activity over time
The Business Cycle
 Prosperity – peak economic activity
 Unemployment is low, production high, new businesses
open, people are spending, demand high
 Recession – Economic activity slows down
 Spending decreases, demand decreases, businesses
produce less…workers get laid off..GDP declines
 Ripple Effect – one industry’s recession can effect
others….car industry slow down hurts car part
manufacturers, loan officers….
The Business Cycle
 Depression – A deep recession that affects the entire
economy and lasts for several years
 High unemployment, low production…..can spread to other
countries
 Stock Market Crash 10/20/29 “Black Tuesday”
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…GDP fell 50%, unemployment rose 800%, 1 out of 4 were
unemployed, wages drastically dropped, money supply fell by 1/3rd.
No FDIC- depositors were not protected, people panic
withdrawals…”bank holiday” March 1933 gov’t closed banks for
several days many never reopened.
The Business Cycle
 Recovery – A rise in business
activity after recession or depression
 Production starts to increase, employment increase
opportunities
 New demand for goods/services stimulates GDP
 Companies may spend to innovate new products,
new way of performing a task.
 Business innovation helps gain an edge on
competition. Costs go down, sales increase, costs go
down, profits increase, business grows, economic
activity soars