Chapter 3 Economic Activity in a Changing World

Chapter 3 Economic Activity in a Changing World

Learning Objectives 1. IDENTIFY how economic activity is measured 2. EXPLAIN how inflation and deflation work 3. DISCUSS the four phases of the business cycle

Why Is This Important? Economic activity affects everyday life. The history of the economy affects industries and people today and tomorrow.

• A major purpose of an economic system is to produce the services wanted by people. • Figures are used to measure economic performance. • These figures are called economic indicators. They measure: – How much a country is producing – Whether its economy is growing – How it compares to other countries

Goods and services that satisfy your wants and needs are the FINAL output of an economy. They are the result of all the activity in the country.

Measuring Economic Activity • • GDP Unemployment Rate of Inflation National Debt

GDP The total value of the goods and services produced in a country in a given year is called its gross domestic product The US has a very high GDP. Zimbabwe has a very low GDP

How To Calculate GDP • • Consumer goods and services Business goods and services Government goods and services Goods and services sold to other countries

Unemployment Rate • Measures the number of people of are able to work but don’t have a job during a given period of time. • Changes in the unemployment rate show whether an economy is picking up or slowing down. • http: //www. macrotrends. org/1339/unemploymentrate-last-ten-years

Types of Unemployment See • http: //en. wikipedia. org/wiki/Types_of_une mployment

Rate of Inflation • An increase in the cost of goods and services • CAN happen when an economy is too productive. • The more people are employed, the more they spend.

Rate of Inflation Cont’d. • As demand goes up producers raise their prices. • To pay the higher prices, workers demand higher wages. • Wages go up, producers raise their prices to pay the wages.

When an economy produces more goods than people want, it has to lower prices and cut production. As a result, people have less money to buy goods so the demand continues to go down. SUPPLY > DEMAND = DEFLATION

National Debt • Main source of government income is TAXES which pays for social programs. • Amount of money a government owes is national debt. GOVN’T REVENUE > EXP. = SURPLUS GOVN’T REVENUE > INCOME = BUDGET DEFICIT

PHASES OF THE BUSINESS CYCLE • • Prosperity (Boom/Peak) Recession Depression Recovery

Characteristics of Prosperity • Low unemployment • Production is high • New businesses open

Characteristics of Recovery • Production starts to increase • People go back to work • Spending increases

Characteristics of Recession • Spending decreases • Demand increases • Unemployment rate increases

Characteristics of depression • High unemployment • Low productivity • 2 consecutive quarterly declines in GDP

Changes in the business cycle affect the economy, industries, and working people. Depressions are rare – Example: Great Depression/Stock Market Crash Activity: You will read an article on the Great Depression, then with a partner, answer the Article Questions.