LESSON 2 1 Measuring Economic Activity Goals n

LESSON 2 -1 Measuring Economic Activity Goals n Define gross domestic product. n Describe economic measures of labor. n Identify economic indicators for consumer spending. 2 1

Key Terms n n n Gross Domestic Product (GDP) GDP per capita unemployment rate productivity personal income retail sales 2 2

GROSS DOMESTIC PRODUCT (GDP) n n n Total value of all final goods and services produced during a year. GDP goes up, economy is growing Consists of: Consumer spending—necessities n Business spending—bldgs, equipment n Government spending—salaries and supplies n Exports minus imports n 2 3

Comparison of GDP in Selected Countries 2 4

>> C H E C K P O I N T What types of economic activities are not included in GDP? Work you do for yourself 2 5

LABOR ACTIVITIES n Employment 130 million people work n Anyone above 16 who are actively working or seeking work n Unemployment rate-n n Productivity—output per worker n Technology, training, management techniques can improve this. 2 6

Unemployment Rate 2 7

>> C H E C K P O I N T What are ways to increase productivity? 2 8

CONSUMER SPENDING n n Personal income Retail sales— n Holiday sales: Up to ½ of yearly sales n Up to 75% of profits n 2 9

LESSON 2 -2 Economic Conditions Change Goals n Describe the four phases of the business cycle. n Explain causes of inflation and deflation. n Identify the importance of interest rates. 2 10

Key Terms n n business cycle prosperity recession depression n n 2 recovery inflation price index deflation 11

THE BUSINESS CYCLE n Prosperity n n Recession n n Demand decreases, unemployment Depression n n Low unemployment, wages good, GDP growth Prolonged high unemployment, weak sales Recovery Unemployment n GDP increases again n 2 12

>> C H E C K P O I N T What are the four phases of the business cycle? Where are we now? Look back at the depression. 2 13

CONSUMER PRICES n n Inflation—increase in the general level of prices Causes of inflation 1. 2. n n Demand greater than supply Low inflation actually good Measuring inflation—price index Deflation n During recession and depression 2 14

Other measures of our economy n Prices (inflation rate) n Increase in general level of prices n “Basket of goods” n Consumer Price Index (CPI) n# comparing prices year to year n Example 2 15

INTEREST RATES n n n Cost of borrowing money What do people borrow money for? Who is affected by changes in interest rates? n Lenders and borrowers and the government 2 16

>> C H E C K P O I N T How do interest rates affect business activities in our economy? Why does it matter? Go to moneychimp. com/calculator and find out for yourself. 2 17

BORROWING n n “Buy now, pay later” Government debt —schools, highways, parks n n National debt—total amount owed by the government Surplus or deficit—bring in more or less than they spend n n n May be able to reduce _______ or increase _____. Business debt—using debt wisely helps businesses Consumer debt n n n Credit cards, mortgages, auto loans $2. 4 trillion ($8100/household in this country) Mortgage Crisis 2 18

Mortgage Crisis—so what? n Who pays for things when people don’t pay back their debt? n Other consumers often n Businesses may lose money 2 19

INVESTMENT ACTIVITIES n Personal savings Money is loaned out for various business activities n Savings rate very low but has improved in the last year n 2 20