Download Economic Activity - Conneaut Area City Schools

CHAPTER 2
Economic
Activity
Employment Outlook
Job
growth in the economic
development field will continue to
grow over the next decade.
Specialized technical skills
(engineering, health care, computer
technology, food processing) will be
in demand, especially in developing
economics of the world.
Job Titles
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Economist
Transportation engineer
Urban and regional Planner
Survey Researcher
Statistician
Statistical Assistant
Budget Analyst
Financial Analyst
Operations Research Analyst
***Requires a bachelor’s degree at least some masters or
doctorates
***Sociology and cultural knowledge is needed for work in
urban settings and in developing nations.
***Special training in statistics, research, health care,
technology, nutrition, and other fields will be helpful.
2.1 MEASURING Economic
Activity
 Key
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Terms:
Gross Domestics Product
GDP per capita
Unemployment Rate
Productivity
Personal Income
Retail Sales
2.1 Objectives
1. Define
gross Domestic Product
2. Describe economic measures of
labor
3. Identify economic indicators for
consumer spending
Gross Domestic Product (GDP)
Growth: – refers to a steady increase in the
production of goods and services in an economic year.
 Economic
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Different Way To Measure Economic Growth
1. Gross Domestic Product: - is the most widely to
measure Economic Growth.
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- is the total dollar value of all final goods and services produced
in a
country during one year.
2. GDP Per Capita: - or output per person
Calculated by GDP/Population – GDP per
capita
Four Major Components Of GDP
1. Consumer spending for food, clothing,
housing, and other aspects.
2. Business spending for building,
equipment, and inventory items.
3. Government spending to pay for
employees and to buy supplies and other
goods and service.
4. The exports of a country less the imports
into the country.
Exceptions
GDP does
not include the value of
work that you do for yourself. Ex
cutting your grass, but if you owned a
grass cutting business it would be
included.
If the GDP increases from year to
year, this means the economy is going
and is healthy
GDP Per Capita:
 Another
way to measure economic growth
 Calculated by dividing GDP by the total
population
• Example – Suppose that GDP doesn’t change over
the last
year, and suppose the population
increases; therefore the
same output would
have to be divided among more people. An
increase in GDP per capita means an economy is
growing. A decrease may mean that the
economy is having trouble.
• GDP /population = GDP per capita
Labor Activities
Workers tribute to the economy in several ways
1. labor activities create needed goods and services
2. the wages they earn are spent to create demand for carious
items
Employment
• Members of the labor force and produce thousand of different
products and services
• Consist of people above 16
Unemployment Rate: - Is the portion of the people in the labor force
who are willing and able to work, but unable to find work
• Economic statistic of concern
• Unemployment rate vary from month to month and are different in
different areas
• Main cause of unemployment is a reduce for demand for goods and
services being provided by various workers
• People are considered to be unemployed if they are looking for
working and willing to work, but can’t find a job.
Productivity
A vital source of economic Growth
is an increase in output per worker.
Productivity: - is the production
output in relation to a unit of input,
such as a worker.
• Improvements in capital resources
(equipment and technology),
workers training, and management
techniques can result in more
output per worker.
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Consumer Spending
The money you earn and spend is one of the most
important factors for economic growth.
Personal Income: - refers to salaries and wages as well
as investments income and government payment to
individuals
Retail Sales:- sales of durable and nondurable goods
bought by consumers
• Measured monthly by the Department of
Commerce.
• Increase in Retail sales means economic growth
• These funds provide the foundation for buying
needed goods and services.
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Retail Sales
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These sales are an indicator of general consumer
spending patterns in the economy
Increase in retail sales usually means economy growth
 Main
items measured are:
 Automobiles
 Building material
 Furniture
 Gasoline
 Clothing
 Purchases from restaurants, department store,
food stores and drug stores
Chapter 2.1 Review questions
Complete
the
Questions on the
Worksheets as a
review
Chapter 2.2 – Economic Conditions
Change
 Key
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Terms:
Business Cycle
Prosperity
Recession
Depression
Recovery
Inflation
Price Index
Deflation
Business Cycle
 Business
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Cycle: - the movement of the
economy from one condition to another and
back again
Are recurring ups and downs of GDP
Four Phases
1. Prosperity
2. Recession
3. Depression
4. Recovery
Prosperity
 Prosperity:
- is the period in which most people
who want to work are working, businesses
produce goods and services in record
numbers, wages are good, and the rate of
GDP growth increases
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Demand for goods and services are high
Highest point of the business cycle
Doesn’t go on forever
 Recession:
- when the economy slows down; second
phases of the business cycle
• Demand begins to decrease
• Businesses lower production
• Unemployment begins to rise
• GDP growth slows for two or more quarters of the
calendar year
 *May not last very long, but may cause trouble for
groups of people in related businesses. This drop in
related businesses is called the Ripple effect.
Recession
Depression
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Depression: - When the recession deepens and spreads
throughout the entire economy; the third phase of the
business cycle
Prolonged period of high unemployment, weak consumer
sales, and business failure.
GDP falls rapidly
Great Depression of U.S. history (1930-1940)
• 25% of all U.S. labor force was unemployed
• Many people could not afford to satisfy even their
basic needs.
• Doesn’t go on forever
Recovery
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Recovery: - when unemployment begins to decrease, demand
for goods and services increases, GDP begins to decrease
four phase of the business cycle
People get jobs
People Gain confidence about their future and begin buying
again.
Inflations
 Inflation
is a huge problem that most nations have to
deal with.
 Inflation : - is an increase in the general level of
prices.
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Buying power of the dollar decrease.
 Example: if prices increase 5% during the last year,
items that cost $100 would now cost $105. This mean it
now takes more money to buy the same amount of goods
and services
Inflation is most hurtful to people on fixed incomes
• Who would that include?
Causes of Inflation
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When demand for goods and services is
greater than the supply.
When a large supply of money, earned or
borrowed, is spent for goods that are in
short supply, prices increase.
Even though wages tend to increase
during inflation, prices of goods and
services usually rise so fast that the wage
earner never seems to catch up.
Measuring Inflation
 1950’s
and 1960’s – annual inflation rate
was 1 to 2 percent
 1970’s and 1980’s – the cost of living
increase 10 to 12 percent annually.
 Consumer Price Index: - is a number that
compares prices in one year with some
earlier base year
• is one of the most watched measures of
inflation
Deflation
Deflation:
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- Opposite of
inflation; a decrease in the
general level of prices.
Usually occurs in periods of
recession and depression.
• Prices of products are lower, but
people have less money to buy
them.
Types of Interest Rates
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Many different types of interest rate which
represent the cost of money for different groups
in different settings
1. Prime Rate: - the rate banks make available to
their business customers, such as large
corporations.
2. Discount Rate: - is the rate financial
institutions are charges to borrow funds from the
Federal Reserve banks.
3. T-Bill Rate: -is the yield on short-term (13week) U.S. government debt obligations.
Types of Interest Rates
4. Treasury
Bond Rate: - is the yield on
long-term (20-year)U.S. government debt
obligations.
5. Mortgage Rate: - is the amount
individuals pay to borrow for the purchase
of a new home.
6. Corporate Bond Rate: - is the cost of
borrowing for large U.S. corporations
7. Certificate of Deposit: - is the rate for sixmonth time deposits at savings institutions.
Changing Interest Rate
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Each Day, the cost of money (interest) changes
because of various reason
• The supply and Demand for money is a major
influence on the level of interest rates.
• As amounts saved increase, interest rates tend
to decline
• When borrowing by consumers, businesses
and government increases, interest rates are
likely to rise
2.2 Review
Complete
the 2.2 Review
Worksheets
Chapter 2.3 Other
Measurements of
Business Activity
Investment Activities
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Investing for the future can happen in several ways. You time in
school is an investment for your future.
When companies buy buildings and equipment; they are also
investing in their future.
Capital Spending: - refers to money spent by a business for an
item that will be used over a long period.
Capital Project: - involve spending by businesses for items such
as land, building, equipment, and new projects.
The money for capital projects comes from three main sources:
Personal Savings
Stock investments
Bonds
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A major source of investment funds is personal savings.
Companies use money you deposit in a bank or other financial
institutions.
These funds provide the money necessary for buying expensive
equipment or creating new products.
In return, savers are paid interest on the money they deposit.
The savings rate of a country is an important factor for economic
growth.
In recent years, the personal savings rate of the United States has
been quite low, often below one percent.
This situation can cause economic concerns in the future.
Personal Savings
Corporations are a major type of business organization.
Many people invest by becoming part owners of a
corporation.
 Stock: - represents ownership in a corporation. Stock
ownership is commonly called equity, which means
“ownership”
 The value of shares of stock is affected by 2 major factors.
1. Supply and demand are major influences.
2. If a company has higher earnings, more people will want to
buy its stock. This causes the value to increase.
Facebook Example
 $31 dollars when first went public now in the teen.
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The Stock Market
The Bond Market
 The
Bond Market
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Another investment activity involves the sales
of bonds.
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Bond: - represents debt for an organization.
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If you purchase a corporate or government
bond, you are a creditor. This means you have lent
money to the organization. In return, bondholders
are paid interest for use of their money.
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Government Debt
People expect services from federal, state, and local government. Those services
cost money.
Borrowing
Often, government uses borrowing to finance various projects.
 New Schools
 Public buildings
 Highways,
 Parks
A government may spend less than it takes in. When this occurs, a Budget Surplus
is a result.
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If a surplus exists, government may reduce taxes or increase spending on
various program.
In contrast, a government may spend more than it takes in. This situation is called a
Budget Deficit.
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Over time, deficits build up. The total amount owed by the federal government
is called the National Debt.
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Debt
Loans, bonds, and mortgages are common borrowing
methods, used by businesses.
Most companies, large and small, use debt at some time.
Efficient use of borrowing can be helpful to companies.
Using the funds of others can help expand sales and
profits.
Sometimes, when poor decisions are made, debt creates
problems. Poor debt management can result in a
company going out of business.
Borrowing
 Consumer
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Debt
People commonly
use credit cards, auto loans and
Borrowing
home mortgages to finance their purchases.
The use of credit cards can be convenient.
Often, overuse of credit cards result in financial
difficulties for individuals and families.
Careful use of credit can be important for economic
growth.
In Contrast, unwise borrowing can result in legal
action and other trouble.
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The ability of an economy to produce output determines its growth.
The private enterprise system in the United States has worked quite
well. Government leaders and citizens know that it can be made to
work even better as they strive to develop new technologies and find
solutions for economic problem.
Various economic problems exist that need to be solved.
Many people do not have access to adequate health care.
Some people do not have proper housing, especially in large cities.
Traffic and crime are also matters of concern for many.
Too many workers are unemployed or do not have appropriate
employment.
Future Economic Challenges
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2.3 Review
Please
Complete the
Review Sheet