Download Economic Activity

Essential Standard 1.00
Understand the role of business in
the global economy.
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Objective 1.02
Understand economic conditions
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Topics
• Measuring economic activities
• Classifying economic conditions
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Measuring Economic Activities
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Measuring Economic Activities
Gross Domestic Product (GDP)
• GDP: a country’s total dollar value of all final goods
and services produced in one year.
– Most commonly used measure to determine a country’s
overall economic growth Growth in GDP
• Major categories included in GDP
– Consumer spending: for food, clothing, housing, other
consumer items
– Business spending: for buildings, equipment, inventory
– Government spending: for employee pay, and to purchase
supplies and other goods and services
– Exports & imports:
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– Exports out of the country (minus) Imports into the country
GDP per capita
GDP per capita = output per person
=_________GDP__________
Total Population of the Country
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Measuring Economic Activities
Labor Activities
• Unemployment rate: includes the people
of the labor force that are not working, but
are willing to work, are looking for work,
but can’t find a job.
• Productivity means …The production
output in relation to a unit of input (by a
worker.) Gains in Productivity Result in Record Output
– What can contribute to employees increasing
their production?
• Equipment, technology, training, management
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Measuring Economic Activities
Labor Activities
– U.S. 12/10 rate=9.4%
• represents over 14,500,000 people
– North Carolina’s 12/10 rate=9.8%
• North Carolina’s 07/10 rate=9.8%
– U.S. lowest: North Dakota 3.8%
• Lowest area unemployment: Lincoln, Nebraska 3.5%
– U.S. highest: Nevada 14.5%
• Highest area unemployment: El Centro, CA 28.3%
– Raleigh/Cary rate=7.8%
• 07/10=8.4%
• Current highest NC is Rocky Mt.=12.6%
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Measuring Economic Activities
Consumer Spending
Measurements of consumer
spending:
• Personal Income: includes the
total wages and salaries plus
investment income and
government payments to
individuals.
• Retail Sales: sales of durable
and non durable goods and
services purchased by consumers
(autos, building materials,
furniture, gas, $ spent at
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restaurants, etc)
Measuring Economic Activities
Investment (for the future)
• The money used for capital projects (land, buildings,
equipment, research) comes from three main sources:
• Personal savings:
– People and businesses deposit money in bank savings
accounts. Banks then lend this money to businesses
which use the borrowed money to buy equipment or
products for their businesses.
– Savers, in turn, earn interest on money used by
companies and other individuals.
– What happens if people don’t save??
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Measuring Economic Activities
Investment (for the future)
• The money used for capital projects (land, buildings,
equipment, research) comes from three main sources:
• The stock market:
– Stock represents ownership in a company. If a company
wants to expand, it can sell stock to raise money.
– Higher earnings for businesses increases their value, which
causes a demand for people wanting to buy the businesses
stock.
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Measuring Economic Activities
Investment (for the future)
• The money used for capital projects (land, buildings,
equipment, research) comes from three main sources:
• The bond market:
– Bonds represent debt for a company. If a company wants
to expand, it can sell bonds to raise money.
• Bondholders purchase the bonds, and earn interest on the money
they have loaned to businesses and the government.
• Eventually, the company pays the bondholders back their money,
with interest.
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Borrowing Activities …
By Governments: If governments want to
spend more than they brings in through taxes
and fees, they may have to borrow money.
This overspending is known as a budget
deficit. U.S. National Debt
Companies may borrow money to start up or
expand. Using borrowed funds efficiently can
result in an increase in sales and profits.
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Measuring Economic
Activities
GDP Per
capita
Consumer
Spending
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Classification of
Economic Conditions
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Situation
PROSPERITY
RECESSION
DEPRESSION
RECOVERY
Employment
trend
Labor: People who want
to work are working;
unemployment low
Wages: Good
Unemployment increases as
workers are laid off.
Supply and
demand of
goods and
services
trend/GDP
GDP: Increasing
Consumer Demand:
Increasing
Demand decreases as people Demand for products and
lose jobs;
services is very weak; GDP
GDP: growth slows for 2 or
falls rapidly
more quarters
Demand increases; GDP begins
to rise
Possible
actions of
businesses
Profits strong as is
production
Companies hiring &
expanding (Macy’s may
open more stores)
Businesses decrease
production as demand decre
ases; profits suffer
Businesses may strategize on
ways to stimulate demand for
goods & services
Businesses begin rehiring and
increasing production; companies
may again begin recruiting efforts
at colleges
Prolonged period of high
unemployment
Business failures and
closings increase;
companies make changes
(such as moving employees
from full time to part time to
decrease hours and reduce
benefits) just to stay open
PROSPERITY
DEPRESSION
Unemployment decreases
companies begin to rehire
workers
Year
Income
Income
percent
change
from year 1
Gallon of
milk cost
Gallon of
milk cost
percent
change
from year 1
1
2
3
$36,000 $38,000 $21,000
n/a
5.6%
-42%
$2.49
$2.99
$3.19
n/a
20%
28%
Over a
three-year
period, how
has the
income
been
impacted by
the
cost of a
gallon of
milk?
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Consumer Prices
•
•
•
•
•
Inflation
Causes of inflation
Consumer Price Index (CPI)
Deflation
Causes of deflation
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Interest Rates
• Types:
–
–
–
–
–
–
–
Prime rate
Discount rate
T-bill rate
Treasury bond rate
Mortgage rate
Corporate bond rate
Certificate of deposit rate
What is the primary
purpose of each?
• How do interest rates impact businesses?
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