2-1 Measuring Economic Activity 2-2 Economic Conditions Change

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e

C H A P T E R 2SLIDE 1

2-1 Measuring Economic Activity

2-2 Economic Conditions Change

2-3 Other Measures of Business Activity

2C H A P T E R

Economic Activity

© 2012 Cengage Learning. All Rights Reserved.SLIDE 2

2-1 Measuring Economic Activity

Goal 1 Define gross domestic product.

Goal 2 Describe economic measures of labor.

Goal 3 Identify economic indicators for consumer spending.



KEY TERMS

● Gross Domestic Product (GDP)● GDP per capita● unemployment rate● productivity● personal income● retail sales


C H A P T E R 2SLIDE 4GROSS DOMESTIC

PRODUCT (GDP)

● Components of GDP● Consumer spending● Business spending● Government spending● Exported goods – imported goods

● Exclusions● Things you do for yourself● Intermediate goods


C H A P T E R 2

GDP PER CAPITA

● Comparing GDP● More accurate to compare GDP per capita● Divide GDP by total population● Who has the best?

● If population grows, but GDP doesn’t then economy is shrinking

SLIDE 5


C H A P T E R 2SLIDE 6COMPARISON OF GDP IN

SELECTED COUNTRIES


C H A P T E R 2SLIDE 7COMPARING GROSS

DOMESTIC PRODUCT



Checkpoint

● What types of economic activities are not included in GDP?● GDP only applies to reported final goods and

services.● Money earned for goods or services that are not

reported would not be included.● Goods and services used in the manufacture of other

products are only counted once—in the final product.



LABOR ACTIVITIES

● Employment● Labor force = 16+ people working or actively

seeking jobs● Unemployment increases when demand for

current goods and services decreases


C H A P T E R 2

LABOR ACTIVITIES

● Productivity – output in relation to input● Increase with fewer workers and same or

increased output● Can decrease if wages grow, but output

doesn’t● Improved equipment/technology● More skills/training● Better management techniques (motivation)

SLIDE 10



Checkpoint

● How can productivity be increased?● Productivity can be increased by

improvements in capital resources (equipment and technology), worker training, and management techniques.



CONSUMER SPENDING

● Personal income● Salaries/wages● Investment income● Government payments

● Retail sales● Dictates general health of economy● What’s included?



Checkpoint

● What are the main sources of personal income?● Sources of personal income include wages,

salaries, investment income, and government payments.


2-2 Economic Conditions Change

Goal 1 Describe the four phases of the business cycle.

Goal 2 Explain causes of inflation and deflation.

Goal 3 Identify the importance of interest rates.



KEY TERMS

● business cycle● prosperity● recession● depression● recovery● inflation● price index● deflation



THE BUSINESS CYCLE

● What factors are evaluated?● GDP, demand for products/services,

employment rate, wages

● Prosperity – highest point● Recession – economy shrinking● Depression – prolonged recession● Recovery – jobs increase, demand

increases, GDP rises



Checkpoint

● What are the four phases of the business cycle?● Prosperity● Recession● Depression● Recovery



CONSUMER PRICES

● Inflation● Bad for fixed incomes

● Causes of inflation● Supply < demand for products● Wages increase slower than product prices


C H A P T E R 2

CONSUMER PRICES

● Measuring inflation● Some inflation is good● If businesses make more $, they can hire

more people● Consumer Price Index (CPI) – measures

inflation (based on selected products)

● Deflation● Recession/depressions● Can result from improved technoogy



Checkpoint

● What are the main causes of inflation?● Inflation is an increase in the general level of

prices that occurs when the demand for goods and services is greater than supply.



INTEREST RATES

● Types of interest rates● Prime rate, discount rate, T-bill rate, treasury

bond rate, mortgage rate, corporate bond rate, certificate of deposit rate

● Changing interest rates● High amount saved lower demand for $

Lower interest rates● Higher spending more demand higher

interest rates



Checkpoint

● How do interest rates affect business activities in our economy?● Interest rates can encourage or discourage borrowing

and spending. ● Lower interest rates allow consumers greater

spending power, which increases demand, productivity, and employment.

● Businesses often pass on the cost of higher interest rates to consumers.


2-3 Other Measures of Business Activity

Goal 1 Discuss investment activities that promote economic growth.

Goal 2 Explain borrowing activities by government, business, and consumers.

Goal 3 Describe future concerns of economic growth.



KEY TERMS

● capital project● stock● bond● budget surplus● budget deficit● national debt



INVESTMENT ACTIVITIES

● These activities provide funds for capital projects● Personal savings

● Low risk, low return (usually <1%)

● The stock market – ownership in corporations● Higher potential risk for higher potential return● Prices determined by supply and demand

● The bond market – loans to corps./govt.



Checkpoint

● Name some examples of capital projects.● Capital projects include the purchase of any

item a business will use over an extended period of time such as land, buildings, and equipment.



BORROWING

● Government debt – necessary to fund projects● Surplus vs. deficit● Surplus helps chip away at national debt

● Business debt● Loans, bonds, mortgages

● Consumer debt● Overly convenient or necessary evil?



Checkpoint

● What is the cause of a budget deficit?● A budget deficit occurs when a government or

organization spends more than it takes in.


C H A P T E R 2SLIDE 29FUTURE ECONOMIC

CHALLENGES

● Emerging markets● What is an emerging market right now?

● Weak economies● Stronger ones usually help

● Consumer preferences and behavior● Know your target market



Checkpoint

● What economic challenges do countries face in the future?● Future economic concerns for any country

include the ability to increase its output and provide a means for its citizens to meet the basic needs of food and shelter, adequate health care, education, transportation, employment, and safety.

2-1 Measuring Economic Activity 2-2 Economic Conditions Change

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