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					Marketing Essentials
         n Chapter 4 Global Economies


  Section 4.2 Understanding
         the Economy


                                        Chapter 4 n Global Economies   1
SECTION 4.2        Understanding the Economy

     What You'll Learn

     The goals of an economy
     The various measurements used to
      analyze an economy
     The four phases of the business cycle




                                      Chapter 4 n Global Economies   2
SECTION 4.2        Understanding the Economy

     Why It's Important

    Soon you will be voting and you may also decide
    to invest in the stock market. These decisions can
    impact your financial well being, so it is essential
    that you understand how an economy is measured
    and what factors contribute to a strong or weak
    economy. It is important to know how you,
    businesses, and the government influence the
    economy. That way you will know how to invest
    your money and cast your ballots.

                                            Chapter 4 n Global Economies   3
SECTION 4.2       Understanding the Economy

   Key Terms
       productivity
       gross domestic product (GDP)
       inflation
       Consumer Price Index (CPI)
       Producer Price Index (PPI)
       business cycle
       prosperity (expansion)
       recession
       depression
       recovery
                                       Chapter 4 n Global Economies   4
SECTION 4.2        Understanding the Economy
  When Is an Economy Successful?

    It is the goal of all economies to:
       increase productivity
       decrease unemployment
       maintain stable prices




                                          Chapter 4 n Global Economies   5
SECTION 4.2         Understanding the Economy
  Economic Measurements

    Accurate economic measurements help
    determine a nation's economic strength.
       employee productivity
       Gross Domestic Product (GDP)
       inflation
       unemployment


                                       Chapter 4 n Global Economies   6
SECTION 4.2       Understanding the Economy
  Employee Productivity

    Productivity is output per worker hour. It
    is usually measured over a defined period
    of time, such as a week, month, or year.
    Businesses can increase their productivity
    by investing in new equipment or facilities
    that increase efficiency, providing
    additional training, and providing financial
    incentives.

                                         Chapter 4 n Global Economies   7
   SECTION 4.2                                         Understanding the Economy
              Productivity and Standard of Living

                                                                  Productivity is a crucial factor
                                                                  in a country's standard of
                                                                  living. What would you
                                                                  surmise about the United
                                                                  States' standard of living for
                                                                  the last five years depicted on
                                                                  this chart? Why do you think
                                                                  employee productivity is
                                                                  increasing?

Source: Bureau of Economic Analysis, Bureau of Labor Statistics

                                                                                  Chapter 4 n Global Economies   8
SECTION 4.2     Understanding the Economy
  Gross Domestic Product (GDP)

    Gross domestic product is a measure of
    the goods and services produced using
    labor and property located in a country.
    Using GDP, governments track an entire
    nation's production output.




                                      Chapter 4 n Global Economies   9
   SECTION 4.2                                         Understanding the Economy
              Gross Domestic Product

                                                                  GDP is the total output of
                                                                  goods and services produced
                                                                  in a country. What does this
                                                                  chart tell you about the
                                                                  United States' GDP and its
                                                                  economy in general? How do
                                                                  you think GDP would be
                                                                  affected by a recession?



Source: Bureau of Economic Analysis, Bureau of Labor Statistics

                                                                               Chapter 4 n Global Economies   10
SECTION 4.2        Understanding the Economy
  Inflation Rate
    Inflation refers to rising prices. A low inflation rate
    (1-5 percent) shows that an economy is stable.
    Controlling inflation is one of a government's
    major goals. The United States measures inflation
    in two ways:
       Consumer Price Index (CPI)
       Producer Price Index (PPI)


                                            Chapter 4 n Global Economies   11
SECTION 4.2       Understanding the Economy
  Inflation Rate: Consumer Price Index

    The Consumer Price Index (CPI), also
    called the cost-of-living index, measures
    the change in price of some 400 retail
    goods and services used by the average
    urban household, such as food, housing,
    utilities, transportation, and medical care.
    The Core CPI excludes food and energy
    prices, which tend to be unpredictable.


                                           Chapter 4 n Global Economies   12
SECTION 4.2       Understanding the Economy
  Inflation Rate: Producer Price Index

    The Producer Price Index (PPI) measures
    wholesale price levels in the economy.
    Wholesale price increases often get passed
    along to the consumer. The Core PPI
    excludes food and energy prices, which
    tend to be volatile. When there is a drop
    in the PPI, it is generally followed by a drop
    in the CPI.


                                          Chapter 4 n Global Economies   13
SECTION 4.2                        Understanding the Economy
   Inflation Barometers




        Source: Labor Department       Source: Labor Department     Source: Labor Department




 CPI and PPI are barometers for inflation. The Core CPI and
 Core PPI take out the volatile food and energy prices from the
 indexes. Based on these three charts, how would you describe
 inflation in the United States for the latter part of the 1990s?
                                                                  Chapter 4 n Global Economies   14
SECTION 4.2      Understanding the Economy
  Unemployment Rate

    All nations chart unemployment rates.
     The higher the unemployment rate,
      the greater the chances of an
      economic slowdown.
     The lower the unemployment rate,
      the greater the chances of an
      economic expansion.


                                       Chapter 4 n Global Economies   15
SECTION 4.2                  Understanding the Economy
  Jobless Rate




                Source: Bureau of Labor Statistics   Source: Bureau of Labor Statistics




   One of the goals of an economy is low unemployment.
   After viewing this chart on the jobless rate, what can be
   said about the United States' attempt to reach that goal?

                                                           Chapter 4 n Global Economies   16
SECTION 4.2       Understanding the Economy
  Other Indicators
    The Consumer Confidence Index (CCI)
    measures consumer confidence about personal
    finance, economic conditions, and buying
    conditions. Retail sales are studied to see if
    market actions match the CCI. Housing starts,
    and truck and auto sales are reviewed. These
    expenditures tend to be affected by the economy
    and interest rates.



                                          Chapter 4 n Global Economies   17
SECTION 4.2                          Understanding the Economy
  Consumer Confidence




      Source: The Conference Board      Source: The Conference Board     Source: The Conference Board



  Consumer confidence is another economic indicator that provides
  a view of how consumers feel about their economic prospects
  (employment, spending). What conclusions can be drawn from
  a review of these three charts? What trend is apparent? Why should
  marketers be concerned with changes in consumer confidence?
                                                                       Chapter 4 n Global Economies     18
SECTION 4.2      Understanding the Economy
  The Business Cycle
    Sometimes an economy grows, and at other
    times it slows down. These recurring changes
    are called the business cycle. The business
    cycle has four phases:
        prosperity
       recession
       depression
       recovery
                                       Chapter 4 n Global Economies   19
SECTION 4.2      Understanding the Economy
  Prosperity

    Prosperity is a period of economic growth
    and expansion. Nationwide there is low
    unemployment, an increase in the output
    of goods and services, and high consumer
    spending.




                                      Chapter 4 n Global Economies   20
SECTION 4.2      Understanding the Economy
  Recession

    Recession is a period of economic slowdown.
    Unemployment begins to rise, fewer goods and
    services are produced, and consumer spending
    decreases. Recessions can end relatively quickly
    or last for a long period of time.




                                       Chapter 4 n Global Economies   21
SECTION 4.2      Understanding the Economy
  Depression

    Depression is a period of prolonged
    recession. Consumer spending is very low,
    unemployment is very high, and production
    of goods and services is down significantly.
    Poverty results because many people are
    out of work and cannot afford to buy food,
    clothing, or shelter. The Great Depression of
    the early 1930s best illustrates a depression.


                                         Chapter 4 n Global Economies   22
SECTION 4.2      Understanding the Economy
  Recovery

    Recovery is a period of renewed economic
    growth following a recession or depression.
    Recovery is characterized by reduced
    unemployment, increased consumer
    spending, and moderate expansion by
    businesses. Periods of recovery differ in
    length and strength.



                                       Chapter 4 n Global Economies   23
SECTION 4.2     Understanding the Economy
  Factors that Affect the Business Cycles

    A government influences business cycles
    through its policies and programs. When
    taxes are raised, businesses and consumers
    have less money with which to fuel the
    economy.
    The government may reduce interest rates,
    cut taxes, or institute federally funded
    programs to spark a depressed economy.

                                     Chapter 4 n Global Economies   24
SECTION 4.2        Understanding the Economy
  Managing the Economy

                                                          The federal funds rate (rate
                                                          banks charge each other for
                                                          overnight loans) and the discount
                                                          rate (rate the U.S. Federal
                                                          Reserve charges banks that
                                                          borrow money from it) are used
                                                          to speed up or slow down an
                                                          economy. From this chart, what
                                                          do you think the motivation of the
                                                          Federal Reserve Board was in
                                                          1991? In 1999? Would you prefer
                                                          to start a new business when
              Source: Federal Reserve, Labor Department
                                                          interest rates are high or low?

                                                                     Chapter 4 n Global Economies   25
SECTION 4.2      Understanding the Economy
  The Global Economy

    A global economy makes possible a global
    recession, because economies of different
    countries depend on economic stability in
    other countries and imports or exports from
    other countries.
     Example: Thailand devalued its currency
      in 1997, causing the collapse of other
      Asian economies and a huge drop in
      the U.S. stock market.
                                        Chapter 4 n Global Economies   26
               4.2   ASSESSMENT


               Reviewing Key Terms and Concepts
                1. What are the goals of any economy?
                2. Name four measurements used to
                   gauge the success of an economy.
                3. Describe in the briefest terms what
                   each of the following stands for: GDP,
                   CPI, PPI, and Core CPI.



Slide 1 of 2                                      Chapter 4 n Global Economies   27
               4.2   ASSESSMENT


               Reviewing Key Terms and Concepts
                4. Describe the four phases of the business
                   cycle.
                5. What stage of the business cycle was the
                   United States in during the year 2000?




Slide 2 of 2                                    Chapter 4 n Global Economies   28
4.2   ASSESSMENT


Thinking Critically
 Assume the economy was growing rapidly
 and there were increases in the CPI, PPI,
 as well as in employee wages and
 spending. What might the government do
 to reduce the risk of inflation?




                                 Chapter 4 n Global Economies   29
Marketing Essentials


     End of Section 4.2



                      Chapter 4 n Global Economies   30

				
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