Download IV. Economic Indicators Learning objective 5 Discuss the three

IV. ECONOMIC INDICATORS
► LEARNING OBJECTIVE 5
Discuss the three major indicators of economic
conditions. (Text pages 56-60)
A. Understanding economic indicators helps
you assess the nation’s economy.
B. Gross Domestic Product
1. GROSS DOMESTIC PRODUCT
(GDP) is the total value of goods and
services produced in a country in a
given year.
2. GDP includes the output of both
domestic and foreign-owned
companies as long as the companies
are located within the U.S.
3. GROSS NATIONAL PRODUCT
(GNP) is similar to GDP, but only
counts Americans producing products
in the country, not other foreign
nationals.
4. A major influence on the growth of
GDP is how productive the work force
is.
5. The total U.S. GDP in 2006 was over
$13 trillion.
C. Unemployment
1. The UNEMPLOYMENT RATE is the
number of civilians at least 16 years
old who are unemployed and tried to
find a job within the prior four weeks.
2. In recent years, the unemployment
rate has been as low as 3.9%.
3. There are four types of unemployment:
frictional, structural, cyclical, and
seasonal (as seen in Text Figure
2.6.).
POWERPOINT 2-10
Economic Indicators
(Refers to text pages 56-60)
BONUS INTERNET
EXERCISE 2-2
Exploring the Gross
Domestic Product
This Internet exercise asks
students to gather data
regarding the gross domestic
product (GDP) of the United
States from the Census
Bureau’s Website. (See
complete exercise on page
2.Error! Bookmark not
defined. of this manual.)
TEXT FIGURE 2.6
Types of Unemployment
and U.S. Unemployment
Rates from 1989 to 2007
(Box in text on page 58)
4.
The U.S. tries to protect those who are
unemployed because of recessions,
industry shifts, and other cyclical
factors.
D. PRICE INDEXES are indexes of the
changes in goods and prices of goods and
services based on the prices of the same
goods and services from a previous period.
1. The price indexes help measure the
health of the economy.
2. The Consumer Price Index measures
the prices of products from month to
month so economists can measure
inflation.
a. INFLATION refers to a general
rise in the prices of goods and
services over time.
b. HYPERINFLATION occurs when
inflation increases beyond 50% in
a given time period.
c. STAGFLATION occurs when
unemployment rates and inflation
rates are high.
d. DEFLATION is a situation in
which prices are actually
declining, occurring when
countries produce so many goods
that people cannot afford to buy
them all.
3. Consumer Price Index (CPI)
a. The CONSUMER PRICE INDEX
(CPI) consists of the monthly
statistics that measure the pace of
inflation or deflation.
b. It tracks the price of 400 goods.
c. Some wages, rents, government
TEXT FIGURE 2.7
Economic Indicators for
the U.S. Economy (Box in
text on page 59)
BONUS CASE 2-3
The Rule of 72
No formula is more useful
for understanding inflation
than the rule of 72. Basically,
the rule allows you to
quickly compute how long it
takes the cost of goods and
services to double at various
compounded rates of growth.
(See complete case,
discussion questions, and
suggested answers on page
2.Error! Bookmark not
defined. of this manual.)
LECTURE LINK 2-4
Other Economic Indicators
In addition to the GDP, CPI,
and unemployment
indicators, there are other
economic indicators that can
forecast changes in the
economy. (See complete
lecture link on page 2.Error!
Bookmark not defined. of
this manual.)
benefits, and interest rates are
based on the CPI.
4. The PRODUCER PRICE INDEX (PPI)
is similar to the consumer price index,
but measures prices at the wholesale
level.
E. Fiscal and Monetary Policy
1. FISCAL POLICY refers to the federal
government’s efforts to keep the
economy stable by increasing or
decreasing taxes or government
spending.
a. The first half of fiscal policy
involves taxation.
i. High tax rates may
discourage small business
ownership.
ii. Low tax rates would tend to
give the economy a boost.
b. The second half of fiscal policy
involves government spending.
i. The national deficit is the
amount of money that the
federal government spends
over and above the amount it
gathers in taxes.
ii. The NATIONAL DEBT is the
sum of government deficits
over time.
c. One way to lessen the annual
deficits is to cut government
spending, but there is a continuing
need for social programs and for
military spending.
2. In an economic boom, businesses do
well.
TEXT FIGURE 2.8
Government Revenues and
Expenditures (Box in text on
page 61)
POWERPOINT 2-12
Fiscal and Monetary Policy
(Refers to text pages 62-64)
CRITICAL THINKING
EXERCISE 2-4
Balancing the Federal
Budget
Can your students balance
the federal budget? This
exercise presents actual 2006
figures and asks them to
make adjustments in
spending and income to do
just that. (See complete
exercise on page 2.Error!
Bookmark not defined. of
this manual.)
BONUS INTERNET
EXERCISE 2-3
The Power of the Fed
The Federal Reserve is one
of the most powerful
institutions in our economy.
This Internet exercise directs
students to explore the Fed
website. (See complete
exercise on page 2.Error!
Bookmark not defined. of
this manual.)
POWERPOINT 2-11
Fiscal and Monetary Policy
(Refers to text pages 60-62)
TEXT FIGURE 2.9
a.
3.
A RECESSION occurs when the
GDP falls for two consecutive
quarters.
b. A DEPRESSION is a severe
recession, when the GDP falls for
several quarters, and recovery is
a long time off.
c. The Great Depression in the late
1920s and 1930s in the U.S.
lasted almost an entire decade.
d. RECOVERY is an improvement in
the economy, marking the end of
a recession or decline.
MONETARY POLICY is the
management of the monetary supply
and interest rates.
a. The Federal Reserve System (the
Fed) is a semiprivate organization
that decides how much money to
put into circulation.
b. Using interest rates
i. When the economy is
booming, the Fed tends to
raise interest rates.
ii. Lowering interest rates
encourages more business
borrowing.
iii. Raising and lowering interest
rates helps control the rapid
ups and downs of the
economy.
c. The Federal Reserve also controls
the money supply.
i. The more money the Fed
makes available to
businesspeople, the faster the
The National Debt (Box in
text on page 62)
TEXT REFERENCE
Ethical Challenge:
Recon Still Cleaning Up
After Katrina
(Box in text on page 63)
Hurricane Katrina is the
worst natural disaster in U.S.
history. This text box
presents some of the failures
and unethical practices that
resulted from the
government’s inadequate
response to the storm’s
destruction. It is a good
overview of the role of
government in disaster
situations.
LECTURE LINK 2-5
Controlling Your Personal
Money Supply
Controlling your personal
money supply is harder than
you may think. (See
complete lecture link on page
2.Error! Bookmark not
defined. of this manual.)
TEXT REFERENCE
Career Spotlight:
Economics and You
(Box in text on page 64)
Although most of your
students will not become
economists, they will use
economic concepts in their
chosen career fields. This
text box discusses how
businesspersons use
d.
economy grows.
ii. To slow the economy, the Fed
lowers the money supply.
The economic goal is to keep the
economy growing.
SELF CHECK QUESTIONS (Text page 64)
1.
Name and discuss the three economic indicators.
2.
What are price indexes? What do they have to do with
the economy?
3.
What is the difference between monetary policy and
fiscal policy?
economic indicators and
principles on a daily basis.
TEXT REFERENCE
Real World Business Apps
This text box continues the
story of Ashon presented
earlier in the text.
Throughout the day Ashon
recalled the news article and
has done some basic
research. He now
understands how economic
forecasts can help his
Internet business. (Box in text
on page 65)