Economic Activity Chapter 2

Transcription

1 Ecnmic Activity Chapter 2

2 Sectin 2.1 Measuring Ecnmic Activity Ecnmic Grwth: steady increase f gds and services Grss Dmestic Prduct (GDP): Ttal value f all final gds and services prduced in the cuntry in a year Calculatin f: Cnsumer spending Business spending Gvernment spending Exprts minus imprts Gds/services nt included in GDP Calculatin: Items we make fr private use Intermediate gds GDP increases usually signals imprvement in ecnmy GDP Per Capita: utput per persn GDP/Ttal ppulatin Increase = grwth

3 Sectin 2.1 Measuring Ecnmic Activity Cnstant Dllar GDP: Calculating GDP after taking ut the effects f price changes Other terms: Real GDP GDP in Real Terms Pht by: Trading Ecnmics

4 Sectin 2.1 Measuring Ecnmic Activity Labr frce: Peple 16 and ver currently wrking r lking fr emplyment Over 155 millin peple Unemplyment rate: prtin f labr frce nt currently wrking Current rate: 5.1% (Surce: Bureau f Labr Statistics) Healthy unemplyment rate: 2-3% Unemplyment rate during Great Depressin: 25% Majr cause f unemplyment: change in demand Prductivity: Output per wrker hur Hw t increase prductivity: Better resurces Better training Better management If wages increase faster than prductivity, it increases prices What wuld mtivate yu t wrk besides mney? Average hurs per week: 1890: 60 hurs Tday: 40 hurs

5 Sectin 2.1 Measuring Ecnmic Activity Persnal Incme: Salaries, wages, investment incme, gvernment payments Used t pay fr gds and services Retail Sales: Sale f durable and nn-durable gds purchased by cnsumers Increase in sales = increase in ecnmic grwth Main items measured: Cars Building materials Gas Furniture Restaurants Department stre sales Grcery stres Drug stres

6 End f Sectin 2.1

7 Sectin 2.2 Ecnmic Cnditin Changes Business Cycle: Mvement f ecnmy thrugh the different cnditins Ups and dwns f GDP Parts f the cycle: Prsperity Recessin Depressin Recvery Prsperity: Bm perid Peak f business Characteristics: Demand is high Thse wh want t wrk are wrking Prductin in recrd numbers GDP Grwth Wages are steady

8 Sectin 2.2 Ecnmic Cnditin Changes Recessin: Ripple effect When ecnmy slws dwn Characteristics: Demand decreases Prductivity decreases Unemplyment rises GDP starts t slw dwn fr 2 r mre financial quarters Time fluctuates as t hw lng this step will last Many believe ur cuntry has been in this ecnmic cnditin fr multiple years Depressin: Lwest pint in ecnmic cycle (Rck bttm) Characteristics: Unemplyment at recrd numbers Sales drp Businesses fail Great Depressin: Crash f stck market in Unemplyment: 25% Prices drpped 25% ** Vide

9 Sectin 2.2 Ecnmic Cnditin Changes Recvery: Ecnmy starts t experience grwth and develpment Characteristics: Mre demand Increased prductivity Unemplyment ges dwn GDP begins t rise Cnsumer cnfidence increases

10 Sectin 2.2 Ecnmic Cnditin Changes Inflatin: Increase in general level f prices Causes buying pwer t decrease Biggest impact: thse n fixed incme Causes f Inflatin: Demand is larger than supply When wages increase faster than prductivity Cver cst f increased prices n materials used t make prject Measuring Inflatin: Mild inflatin: 2-3% a year Stimulates ecnmic grwth Hyperinflatin: 400% Causes ecnmic distress Cnsumer Price Index (CPI): Number that cmpares prices in ne year t prices in an earlier base year Different items are used t calculate the CPI

11 Sectin 2.2 Ecnmic Cnditin Changes Deflatin: Decrease in the general level f prices Happens when supply is greater than demand Usually ccurs during recessin and depressin Interest Rates: Cst f mney Cntrlled by the Federal Reserve (The Fed) Changes based n supply and demand f mney Used in: Saving Brrwing Types f Interest: Prime Rate: rates ffered t best business custmers Discunt Rate: rate financial institutins are charged t brrw mney frm The Fed T-Bill Rate: rate n shrt-term (13- weeks) gvernment debt bligatins Treasury Bnd Rate: rate n lngterm (up t 30 years) gvernment debt bligatins Mrtgage Rate: rate t brrw mney t buy a huse Crprate Bnd Rate: rate t brrw fr large crpratins Certificate f Depsit Rate: rate fr time depsits in financial institutins

12 End f Sectin 2.2

13 Sectin 2.3 Other Measurements f Investment Activities: Hw d yu invest? Capital Spending: mney spent by a business fr an item ver a lng perid f time Capital Prjects: spending n large items such as land, buildings, equipment, new prducts, etc. Surces f incme: Savings Stck investments Bnds Campaigns BASD Athletic Cmplex Business Activity

14 Sectin 2.3 Other Measurements f Persnal Savings: Create accunts in banks and credit unins Examples: Savings Mney Market Certificate f Depsit Stck Market: Stck: represents wnership in a crpratin Nt all crpratins sell stck; sme are privately wned Stck wnership: called equity Sharehlders/stckhlders Supply and demand affect prices Business Activity Pht Credit: Frbes.cm

15 Sectin 2.3 Other Measurements f Bnd Market: Bnd: debt fr an rganizatin Yu: purchaser/creditr Bndhlder is paid interest fr letting gvernment/cmpany use their mney Brrwing: All types f cnsumers brrw When wuld yu brrw mney? Business Debt: Cmmn methds: Lans Bnds Mrtgages Why wuld businesses chse t g int debt? Business Activity Gvernment Debt: Used t finance varius prjects Can yu think f examples? Budget surplus: spend less than bring in Budget deficit: spend mre than bring in Natinal debt: amunt wed by federal gvernment Cnsumer Debt: Must use carefully Examples? Credit scre: measure f yur effectiveness f mney management

16 Sectin 2.3 Other Measurements f Emerging markets: Where cnsumer incme and buying pwer is increasing due t ecnmic expansin Happening glbally Sme cuntries lack in needed resurces t be successful Businesses/Organizatins created t help prvide: Training Technlgy Educatin Lans/mnetary assistance Slutins fr prblems Hunger Disease Water Pverty Business Activity Success: Be aware f cnsumer needs/wants Cnduct research t understand cnsumer behavir and preferences Fcus n ecnmy, culture, and plitical cnditins All rganizatins must wrk chesively in rder t prvide the best standard f living fr all citizens within a cuntry

17 End f Chapter