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Why It’s ImportantWhy It’s Important
Economic activity affects everyday life. The history of the economy affects and of today and tomorrow.
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Measuring Economic Activity Measuring Economic Activity
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Measuring Economic Activity Measuring Economic Activity Economic indicators measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries.
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Gross Domestic Product (GDP) Gross Domestic Product (GDP) One way of telling how well an economy is performing is to determine how many
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Gross Domestic Product (GDP) Gross Domestic Product (GDP) The total value of the goods and services produced in a country in a given year is called its
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Gross Domestic Product (GDP) Gross Domestic Product (GDP) To calculate the GDP, economists compute the sum of goods and services.
continued
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Gross Domestic Product (GDP) Gross Domestic Product (GDP)
• ________ goods and services• __________ goods and services• ___________ goods and services• Goods and services
_________________________
Economists include four main areas in calculating the GDP:
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Gross Domestic Product (GDP) Gross Domestic Product (GDP) The GDP doesn’t include the goods and services that aren’t reported to the government.
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Gross Domestic Product (GDP) Gross Domestic Product (GDP) The standard of living is the
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Figure3.1 GROSS DOMESTIC PRODUCT
The gross domestic product (GDP) is the output of goods and services produced in a country.
What percentage did the GDP increase from the end of Year 2 to the beginning of Year 3?
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Graphic OrganizerGross Domestic ProductGross Domestic Product
Graphic OrganizerGraphic Organizer
ConsumerConsumergoods goods
andandservicesservices
BusinessBusinessgoodsgoods
andandservicesservices
GovernmentGovernmentgoodsgoods
andandservicesservices
GoodsGoodsandand
servicesservicessold tosold tootherother
countriescountries
+ =++GrossGross
DomesticDomesticProductProduct
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Unemployment Rate Unemployment Rate The unemployment rate measures the number of people who are able to work but don’t have a job during a given period of time.
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Unemployment Rate Unemployment Rate There are different reasons for being unemployed, including:
• ______________• ______________• ______________• ______________
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Unemployment Rate Unemployment Rate Changes in the unemployment rate show whether an economy is picking up or slowing down.
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Rate of Inflation Rate of Inflation Inflation is
Inflation can happen when an economy actually becomes too productive.
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Rate of Inflation Rate of Inflation As the demand for goods goes up, producers raise their prices.
To pay the higher prices, workers demand higher wages.
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Rate of Inflation Rate of Inflation When wages go up, producers raise prices again to pay for the higher wages, and so on.
This situation can spiral out of control and lead to hyperinflation.
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Rate of Inflation Rate of Inflation Deflation
When an economy produces more goods than people want, it has to lower prices and cut production.
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Rate of Inflation Rate of Inflation The United States tries to maintain a slow but steady rate of economic growth to avoid both inflation and deflation. (Federal Reserve)
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National Debt National Debt When the government ________________________________________, the difference in the amount is called the budget deficit.
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National Debt National Debt The total amount of money a government owes is its national debt.
If the debt gets too large, a nation can become dependent on other nations or unable to borrow any more money.
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National Debt National Debt If a nation spends less than its income, it has a budget surplus.
The government will probably use a surplus to cut taxes, reduce the national debt, or increase spending for certain programs.
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The Business Cycle The Business Cycle Over long periods of time economic changes seem to form patterns.
The rise and fall of economic activity over time is called the business cycle.
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The Business Cycle The Business Cycle The four phases of the business cycle are:
• __________ • __________• __________• __________
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Figure3.2 BUSINESS CYCLE MODEL
The repeated rise and fall of economic activity over time is called a business cycle.
What are the four phases of the cycle?
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The Business Cycle The Business Cycle In a global economy, in which several countries are trading goods and services with one another, one country’s economy can affect its trading partners’ economies.
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Prosperity Prosperity Prosperity is a peak of economic activity.
Unemployment is low, production of goods and services is high, and new businesses open.
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Prosperity Prosperity Prosperity, however, does not last. Any number of things can change.
Companies produce too much, people stop buying, or inflation rises dramatically.
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Recession Recession During a recession,
There is a general drop in the total production of goods and services, so the GDP declines.
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Recession Recession A recession can affect only one industry, related industries, or spread to the entire economy.
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Recession Recession The ripple effect is when a recession in one industry leads to a recession in other industries.
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Depression Depression A deep recession that affects the entire economy and lasts for several years is called a depression.
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Depression Depression During a depression there is high unemployment, low production of goods and services, and excess capacity in manufacturing plants.
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Depression Depression A depression can be limited to one country but usually spreads to related countries.
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Depression Depression The stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression.
Between 1929 and 1933, GDP fell from approximately $103 billion to $55 billion.
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Depression Depression During the Great Depression, the number of people out of work rose nearly 800 percent.
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Depression Depression During the Great Depression, many banks failed.
The money supply fell by one-third.
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Recovery Recovery A rise in business activity after a recession or depression is called a recovery.
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Recovery Recovery During a recovery:
• _________________• _____________________________ _____________________________
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Recovery Recovery
• The new demand for goods and services stimulates more production
• The GDP grows• New businesses open
During a recovery:
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Recovery Recovery A recovery can take a long time or it can happen quickly.
During World War II, the United States recovered from the Great Depression much faster because of the demand for war production.
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