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					  Chapter 2

Economic Activity
          Economic Growth

• Refers to a steady increase in production of
  goods & services (G&S) in an economic
  system.

• Several methods available to check
  economic growth
                        America’s Workforce
• Over 130 million Americans work to help
  produce G&S                                     QuickTime™ and a
                                        TIFF (Uncompressed) decompressor
                                           are needed to see this picture.




• The total of all the G&S Americans produce
  is the Output or Production of our nation
             QuickTime™ and a
   TIFF (Uncompressed) decompressor
      are needed to see this picture.
Ways to Measure Economic Growth
 • Gross Domestic Product (GDP)--measures
   output from year to year
                               GDP

 • GDP Per Capita--measures output per
   person

 • Labor Productivity--measures output per
   worker
    GROSS DOMESTIC PRODUCT
             (GDP)

• One way to find out how well our economy is
  doing is to compare output from year to year.
  The Fed Gov’t collects information from
  producers and estimates our national output.
                   Qui ckTi me™ a  nd a                   .erutc ip s iht ees ot dedeen era
                 c   p
       TIF F ( Un om r ess e       c    p
                              d) de om r ess or      ros se rp mo ced )de sse rp mo cnU ( F FIT
          are n ee  d o             i ur e
                  de t see this p c t     .                   a dna ™em iTkc iuQ




• GDP: The total dollar value of all final G&S
  produced in our country during one year.
                           QuickTime™ and a
                TIFF (Uncompressed) decompressor
                   are needed to see this picture.
       GDP Includes 4 Major
     Categories of Expenditures
1. Consumer spending for food, clothing,
                                                                           Qu i ckTi me ™ an d a
                                                               TIFF (Un co mp re ss e d) de co mp re ss o r
                                                                  a re ne ed ed to se e thi s p i ctu re .




transportation, entertainment & housing.
2. Business spending for buildings,                QuickTime™ and a
                                         TIF F (Uncompressed) decompressor
                                            are needed to see this picture.




equipment, and supplies.
3. Government spending to pay employees
and to buy supplies.
                                                               QuickTime™ and a
                                                     TIFF (Uncompressed) decompressor
                                                        are needed to see this picture.




4. Exports less imports of the country
       GDP Does Not Include:

• The value of work we do for ourselves

• Only final goods are counted: cars would
  be counted, but not the intermediate goods
  used in manufacturing, such as steel and
  fabrics
    Difficulties in Comparing GDP
• PRICES: Prices
  generally do not stay the
  same--they fluctuate,
  generally going up.
• Because of this, it is not
  fair to say that we
  produced more this year
  than last when maybe
  the price actually
  increased.
                GDP Per Capita
• Output Per Person

• To calculate GDP Per Capita, take the GDP divided by
  the population of the country.

• Suppose that population increases. You can see that
  the same output would have to be divided among more
  people.

• An increase in GDP Per Capita means that economy is
  growing. A decrease may mean that the economy is
  having trouble.
Labor Productivity
   • Productivity: The number of items produced per
     worker.

   • Quality capital resources, worker
     training, & management techniques
     have increased worker output.

   • Standard of Living increases w/ worker
     productivity and hours worked per week will
     decrease-leaving more leisure time.

   • Unemployment Rate: The portion of people in
     the labor force who are not working--a high rate
     of unemployment could affect productivity.
        Economic Indicators of
         Consumer Spending
• Personal Income
  provides the                         QuickTime™ and a
                            TIFF (Uncompressed) decompressor

  foundation for buying
                               are needed to see this picture.




  goods & services.
                                                                                       Qu i ckTi me ™ an d a
                                                                            TIFF (Un co mp re ss ed ) de co mpre ss or
                                                                              a re ne ed ed to se e thi s p i cture .




• Retail Sales: the sales
  of durable and
  nondurable goods                               QuickT ime™ and a
                                       T IF F (Uncompressed) decompressor
                                          are needed to see this picture.




  bought by consumers.
          The Business Cycle
• The movement of the
  economy from one
  condition to another
  and back again is
  called a business
  cycle.
• There are 4 phases in
  the business cycle.
                  The Business Cycle
• Prosperity: The peak
   of the business cycle.

• Low unemployment

• Wages are good

• Businesses produce record G
  &S

• GDP increases
Recession:      When the
    economy slows down.
   Demand begins to
    decrease
   Businesses lower
    production
   Unemployment begins
    to rise
   GDP slows down
Depression:       When a
  recession deepens &
  spreads throughout the
  entire economy.
• Very high
  unemployment

• Weak consumer sales

• Business fails
Recovery:          When the
  economy begins to increase--
  may be fast or slow; can occur
  after either a recession or
  depression.

• Demand for G&S start to
  rise

• GDP begins to rise

• Unemployment begins to
  decrease

• People gain confidence
  and begin buying again
           Inflation/Deflation
• Inflation: A sustained increase in the
  general level of prices. Big problem during
  the 70’s and early 80’s (Farm Crisis); a 2-
  3% increase is considered mild

• Deflation: A decrease in the general level of
  prices. It usually occurs in periods of
  recession and depression.
             Causes of Inflation
• When demand for a product is greater than the supply
  of a product.

• Basically when the government increases the money
  supply faster than the quantity of goods increases we
  have inflation. Interestingly as the supply of goods
  increase the money supply has to increase or else
  prices actually go down.

• When costs of making a product increase and this
  causes supply to decrease.
                                          Interest Rates
                                                                               • Interest Rate: the cost
           QuickTime™ and a                                                      of using someone
                                                                                 else’s money.
TIFF (Uncompressed) decompressor
   are needed to see this picture.



                                                                               • You earn interest on
                                                    QuickT ime™ and a
                                          T IF F (Uncompressed) decompressor
                                                                                 your savings & you
                                                                                 pay interest on what
                                             are needed to see this picture.




                                                                                 you borrow.
                                                                               • Interest rates change--
                QuickTime™ and a
                                                                                 generally on a daily
     TIFF (Uncompressed) decompressor
        are needed to see this picture.                                          basis.
    Other Measures of Business
            Activity
• Investment Activities:   • Borrowing: Page 45-46
  Capital Projects by      Gov’t Debt:
  businesses, Personal
  Savings, Investing in
  the Stock Market or      Business Debt:
  Buying Bonds

                           Consumer Debt:
   Future Economic Challenges
• Technology: Expands   •   Health Care
  our opportunity to    •   Homeless
  market G & S          •   Gangs
  worldwide.
                        •   War
                 GROSS DOMESTIC PRODUCT
                          (GDP)

• GDP: The total dollar value of all final G&S
  produced in our country during one year.                                          c
                                                                          TIF F ( Un om r ess e
                                                                                      Qui ckTi m
                                                                                        p
                                                                                                e™ a  nd a
                                                                                                      c    p
                                                                                                 d) de om r ess or
                                                                             are n ee  d o             i ur e
                                                                                     de t see this p c t     .




• One way to find out how well our economy is
  doing is to compare output from year to year
  using the GDP.
                                            .erutc ip s iht ees ot dedeen era
                                       ros se rp mo ced )de sse rp mo cnU ( F FIT
                                                a dna ™em iTkc iuQ




             QuickTime™ and a
  TIFF (Uncompressed) decompressor
     are needed to see this picture.
GDP Includes 4 Major Categories
       of Expenditures
1. Consumer spending for food, clothing,                                 Qu i ckTi me ™ an d a
                                                             TIFF (Un co mp re ss e d) de co mp re ss o r
                                                                a re ne ed ed to se e thi s p i ctu re .




   transportation, entertainment & housing.
2. Business spending for buildings,              QuickTime™ and a
                                       TIF F (Uncompressed) decompressor
                                          are needed to see this picture.




   equipment, and supplies.
3. Government spending to pay employees
   and to buy supplies.                                      QuickTime™ and a
                                                   TIFF (Uncompressed) decompressor
                                                      are needed to see this picture.




4. Exports less imports of the country
       GDP Does Not Include:

• The value of work we do for ourselves

• Only final goods are counted: cars would
  be counted, but not the intermediate goods
  used in manufacturing, such as steel and
  fabrics
    Difficulties in Comparing GDP
• PRICES: Prices
  generally do not stay the
  same--they fluctuate,
  generally going up.
• Because of this, it is not
  fair to say that we
  produced more this year
  than last when maybe
  the price actually
  increased.
                GDP Per Capita
• Output Per Person

• To calculate GDP Per Capita, take the GDP divided by
  the population of the country.

• Suppose that population increases. You can see that
  the same output would have to be divided among more
  people.

• An increase in GDP Per Capita means that economy is
  growing. A decrease may mean that the economy is
  having trouble.
Labor Productivity
   • Productivity: The number of items produced per
     worker.

   • Quality capital resources, worker
     training, & management techniques
     have increased worker output.

   • Standard of Living increases w/ worker
     productivity and hours worked per week will
     decrease-leaving more leisure time.

   • Unemployment Rate: The portion of people in
     the labor force who are not working--a high rate
     of unemployment could affect productivity.
        Economic Indicators of
         Consumer Spending
• Personal Income
  provides the                         QuickTime™ and a
                            TIFF (Uncompressed) decompressor

  foundation for buying
                               are needed to see this picture.




  goods & services.
                                                                                       Qu i ckTi me ™ an d a
                                                                            TIFF (Un co mp re ss ed ) de co mpre ss or
                                                                              a re ne ed ed to se e thi s p i cture .




• Retail Sales: the sales
  of durable and
  nondurable goods                               QuickT ime™ and a
                                       T IF F (Uncompressed) decompressor
                                          are needed to see this picture.




  bought by consumers.
          The Business Cycle
• The movement of the
  economy from one
  condition to another
  and back again is
  called a business
  cycle.
• There are 4 phases in
  the business cycle.
              The Business Cycle
• Prosperity:       The
  peak of the business
  cycle.

• Low unemployment

• Wages are good

• Businesses produce
  record G & S

• GDP increases
Recession:      When the
    economy slows down.
   Demand begins to
    decrease
   Businesses lower
    production
   Unemployment begins
    to rise
   GDP slows down
Depression:       When a
  recession deepens &
  spreads throughout the
  entire economy.
• Very high
  unemployment

• Weak consumer sales

• Business fails
Recovery:          When the
  economy begins to increase--
  may be fast or slow; can occur
  after either a recession or
  depression.

• Demand for G&S start to
  rise

• GDP begins to rise

• Unemployment begins to
  decrease

• People gain confidence
  and begin buying again
           Inflation/Deflation
• Inflation: A sustained increase in the
  general level of prices. Big problem during
  the 70’s and early 80’s (Farm Crisis); a 2-
  3% increase is considered mild

• Deflation: A decrease in the general level of
  prices. It usually occurs in periods of
  recession and depression.
             Causes of Inflation
• When demand for a product is greater than the supply
  of a product.

• Basically when the government increases the money
  supply faster than the quantity of goods increases we
  have inflation. Interestingly as the supply of goods
  increase the money supply has to increase or else
  prices actually go down.

• When costs of making a product increase and this
  causes supply to decrease.
                                          Interest Rates
                                                                               • Interest Rate: the cost
           QuickTime™ and a                                                      of using someone
                                                                                 else’s money.
TIFF (Uncompressed) decompressor
   are needed to see this picture.



                                                                               • You earn interest on
                                                    QuickT ime™ and a
                                          T IF F (Uncompressed) decompressor
                                                                                 your savings & you
                                                                                 pay interest on what
                                             are needed to see this picture.




                                                                                 you borrow.
                                                                               • Interest rates change--
                QuickTime™ and a
                                                                                 generally on a daily
     TIFF (Uncompressed) decompressor
        are needed to see this picture.                                          basis.
      Other Measures of Business
              Activity
• Investment Activities:         • Borrowing: Page 45-46
  capital projects by            Government Debt: gov’t
  businesses, personal             borrows money to help finance
  savings, investing in the        projects…
  Stock Market or buying
  bonds                          Business Debt:       most businesses
• Careful use of credit can be     will take out business loans or
                                   mortgages
  important for economic
  growth--too much credit
  can cause problems!            Consumer Debt: credit cards, car
                                   loans, & mortgages
   Future Economic Challenges
• Technology: Expands   •   Health Care
  our opportunity to    •   Homeless
  market G & S          •   Gangs
  worldwide.
                        •   War

				
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posted:9/18/2011
language:English
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