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Introduction to Business

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					Chapter 3
Economic Activity in a
Changing World
pp. 34-47




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Chapter                             3
     Gross Domestic Product (GDP)
   One way of telling how well an
   economy is performing is to determine
   how many goods and services it
   produces during a certain period of
   time.


Introduction to Business, Economic Activity in a Changing World   Slide 2 of 54
Chapter                             3
     Gross Domestic Product (GDP)
   The total value of the goods and
   services produced in a country in a
   given year is called its gross
   domestic product (GDP).



Introduction to Business, Economic Activity in a Changing World   Slide 3 of 54
Chapter                             3
     Gross Domestic Product (GDP)
   To calculate the GDP, economists
   compute the sum of goods and
   services.



                                                                  continued
Introduction to Business, Economic Activity in a Changing World      Slide 4 of 54
Chapter                             3
     Gross Domestic Product (GDP)
    Economists include four main areas in
    calculating the GDP:
    • Consumer goods and services
    • Business goods and services
    • Government goods and services
    • Goods and services sold to other
      countries
Introduction to Business, Economic Activity in a Changing World   Slide 5 of 54
Chapter                             3
     Gross Domestic Product (GDP)
   The GDP doesn’t include the goods
   and services that aren’t reported to the
   government.




Introduction to Business, Economic Activity in a Changing World   Slide 6 of 54
Chapter                             3
     Gross Domestic Product (GDP)
   The standard of living is the amount
   of goods and services the average
   citizen can buy.




Introduction to Business, Economic Activity in a Changing World   Slide 7 of 54
Chapter                             3
   Figure
     3.1    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?

Introduction to Business, Economic Activity in a Changing World            Slide 8 of 54
    Graphic Organizer
Chapter
     Graphic Organizer
   Gross Domestic Product
                                      3
                                                           Goods
Consumer           Business           Government             and
  goods             goods               goods                               Gross
                                                          services
   and        +      and          +      and         +     sold to    =   Domestic
 services          services            services             other          Product
                                                          countries




Introduction to Business, Economic Activity in a Changing World            Slide 9 of 54
Chapter                             3
                   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.



Introduction to Business, Economic Activity in a Changing World   Slide 10 of 54
Chapter                             3
                   Unemployment Rate
   There are different reasons for being
   unemployed, including:
   • Temporary
   • Seasonal
   • Changes in industry
   • Economic slowdown
Introduction to Business, Economic Activity in a Changing World   Slide 11 of 54
Chapter                             3
                   Unemployment Rate
   Changes in the unemployment rate
   show whether an economy is picking
   up or slowing down.




Introduction to Business, Economic Activity in a Changing World   Slide 12 of 54
Chapter                             3
                         Rate of Inflation
   Inflation is a general increase in the
   cost of goods and services.

   Inflation can happen when an
   economy actually becomes too
   productive.

Introduction to Business, Economic Activity in a Changing World   Slide 13 of 54
Chapter                             3
                         Rate of Inflation
   As the demand for goods goes up,
   producers raise their prices.
   To pay the higher prices, workers
   demand higher wages.



Introduction to Business, Economic Activity in a Changing World   Slide 14 of 54
Chapter                             3
                         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.


Introduction to Business, Economic Activity in a Changing World   Slide 15 of 54
Chapter                             3
                         Rate of Inflation
   Deflation is a general decrease in the
   cost of goods and services.
   When an economy produces more
   goods than people want, it has to
   lower prices and cut production.

Introduction to Business, Economic Activity in a Changing World   Slide 16 of 54
Chapter                             3
                         Rate of Inflation
   The United States tries to maintain a
   slow but steady rate of economic
   growth to avoid both inflation and
   deflation.



Introduction to Business, Economic Activity in a Changing World   Slide 17 of 54
Chapter                             3
                            National Debt
   When the government spends more
   on programs than it collects in taxes,
   the difference in the amount is called
   the budget deficit.



Introduction to Business, Economic Activity in a Changing World   Slide 18 of 54
Chapter                             3
                            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.

Introduction to Business, Economic Activity in a Changing World   Slide 19 of 54
Chapter                             3
                            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.
Introduction to Business, Economic Activity in a Changing World   Slide 20 of 54
Chapter                             3
                    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.

Introduction to Business, Economic Activity in a Changing World   Slide 21 of 54
Chapter                             3
                    The Business Cycle
   The four phases of the business cycle
   are:
    • Prosperity
    • Recession
    • Depression
    • Recovery
Introduction to Business, Economic Activity in a Changing World   Slide 22 of 54
Chapter                             3
   Figure
     3.2    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?



Introduction to Business, Economic Activity in a Changing World              Slide 23 of 54
Chapter                             3
                    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.


Introduction to Business, Economic Activity in a Changing World   Slide 24 of 54
Chapter                             3
                                 Prosperity
   Prosperity is a peak of economic
   activity.
   Unemployment is low, production of
   goods and services is high, and new
   businesses open.

Introduction to Business, Economic Activity in a Changing World   Slide 25 of 54
Chapter                             3
                                 Prosperity
   Prosperity, however, does not last.
   Any number of things can change.
   Companies produce too much, people
   stop buying, or inflation rises
   dramatically.


Introduction to Business, Economic Activity in a Changing World   Slide 26 of 54
Chapter                             3
                                Recession
   During a recession, economic activity
   slows down.
   There is a general drop in the total
   production of goods and services, so
   the GDP declines.

Introduction to Business, Economic Activity in a Changing World   Slide 27 of 54
Chapter                             3
                                Recession
   A recession can affect only one
   industry, related industries, or spread
   to the entire economy.




Introduction to Business, Economic Activity in a Changing World   Slide 28 of 54
Chapter                             3
                                Recession
   The ripple effect is when a recession
   in one industry leads to a recession in
   other industries.




Introduction to Business, Economic Activity in a Changing World   Slide 29 of 54
Chapter                             3
                               Depression
   A deep recession that affects the
   entire economy and lasts for several
   years is called a depression.




Introduction to Business, Economic Activity in a Changing World   Slide 30 of 54
Chapter                             3
                               Depression
   During a depression there is high
   unemployment, low production of
   goods and services, and excess
   capacity in manufacturing plants.



Introduction to Business, Economic Activity in a Changing World   Slide 31 of 54
Chapter                             3
                               Depression
   A depression can be limited to one
   country but usually spreads to related
   countries.




Introduction to Business, Economic Activity in a Changing World   Slide 32 of 54
Chapter                             3
                               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.
Introduction to Business, Economic Activity in a Changing World   Slide 33 of 54
Chapter                             3
                               Depression
   During the Great Depression, the
   number of people out of work rose
   nearly 800 percent.




Introduction to Business, Economic Activity in a Changing World   Slide 34 of 54
Chapter                             3
                               Depression
   During the Great Depression, many
   banks failed.

   The money supply fell by one-third.



Introduction to Business, Economic Activity in a Changing World   Slide 35 of 54
Chapter                             3
                                  Recovery
   A rise in business activity after a
   recession or depression is called a
   recovery.




Introduction to Business, Economic Activity in a Changing World   Slide 36 of 54
Chapter                             3
                                  Recovery
   During a recovery:
   • Production starts to increase
   • People start going back to work and
      have money to spend again


                                                                  continued
Introduction to Business, Economic Activity in a Changing World      Slide 37 of 54
Chapter                             3
                                  Recovery
   During a recovery:

   • The new demand for goods and
     services stimulates more production
   • The GDP grows
   • New businesses open

Introduction to Business, Economic Activity in a Changing World   Slide 38 of 54
Chapter                             3
                                  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.
Introduction to Business, Economic Activity in a Changing World   Slide 39 of 54

				
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