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C H A P T E R. 2. Economic Activity. 2-1 Measuring Economic Activity 2-2 Economic Conditions Change 2-3 Other Measures of Business Activity. 2-1 Measuring Economic Activity. Goal 1 Define gross domestic product. Goal 2 Describe economic measures of labor. - PowerPoint PPT Presentation
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© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 1
2-1 Measuring Economic Activity
2-2 Economic Conditions Change
2-3 Other Measures of Business Activity
2C H A P T E R
Economic Activity
© 2012 Cengage Learning. All Rights Reserved.SLIDE 2
2-1 Measuring Economic Activity
Goal 1 Define gross domestic product.
Goal 2 Describe economic measures of labor.
Goal 3 Identify economic indicators for consumer spending.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 3
KEY TERMS
● Gross Domestic Product (GDP)● GDP per capita● unemployment rate● productivity● personal income● retail sales
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 4GROSS DOMESTIC
PRODUCT (GDP)
● Components of GDP● Consumer spending● Business spending● Government spending● Exported goods – imported goods
● Exclusions● Things you do for yourself● Intermediate goods
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2
GDP PER CAPITA
● Comparing GDP● More accurate to compare GDP per capita● Divide GDP by total population● Who has the best?
● If population grows, but GDP doesn’t then economy is shrinking
SLIDE 5
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 6COMPARISON OF GDP IN
SELECTED COUNTRIES
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 7COMPARING GROSS
DOMESTIC PRODUCT
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 8
Checkpoint
● What types of economic activities are not included in GDP?● GDP only applies to reported final goods and
services.● Money earned for goods or services that are not
reported would not be included.● Goods and services used in the manufacture of other
products are only counted once—in the final product.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 9
LABOR ACTIVITIES
● Employment● Labor force = 16+ people working or actively
seeking jobs● Unemployment increases when demand for
current goods and services decreases
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2
LABOR ACTIVITIES
● Productivity – output in relation to input● Increase with fewer workers and same or
increased output● Can decrease if wages grow, but output
doesn’t● Improved equipment/technology● More skills/training● Better management techniques (motivation)
SLIDE 10
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 11
Checkpoint
● How can productivity be increased?● Productivity can be increased by
improvements in capital resources (equipment and technology), worker training, and management techniques.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 12
CONSUMER SPENDING
● Personal income● Salaries/wages● Investment income● Government payments
● Retail sales● Dictates general health of economy● What’s included?
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 13
Checkpoint
● What are the main sources of personal income?● Sources of personal income include wages,
salaries, investment income, and government payments.
© 2012 Cengage Learning. All Rights Reserved.SLIDE 14
2-2 Economic Conditions Change
Goal 1 Describe the four phases of the business cycle.
Goal 2 Explain causes of inflation and deflation.
Goal 3 Identify the importance of interest rates.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 15
KEY TERMS
● business cycle● prosperity● recession● depression● recovery● inflation● price index● deflation
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 16
THE BUSINESS CYCLE
● What factors are evaluated?● GDP, demand for products/services,
employment rate, wages
● Prosperity – highest point● Recession – economy shrinking● Depression – prolonged recession● Recovery – jobs increase, demand
increases, GDP rises
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 17
Checkpoint
● What are the four phases of the business cycle?● Prosperity● Recession● Depression● Recovery
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 18
CONSUMER PRICES
● Inflation● Bad for fixed incomes
● Causes of inflation● Supply < demand for products● Wages increase slower than product prices
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2
CONSUMER PRICES
● Measuring inflation● Some inflation is good● If businesses make more $, they can hire
more people● Consumer Price Index (CPI) – measures
inflation (based on selected products)
● Deflation● Recession/depressions● Can result from improved technoogy
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 20
Checkpoint
● What are the main causes of inflation?● Inflation is an increase in the general level of
prices that occurs when the demand for goods and services is greater than supply.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 21
INTEREST RATES
● Types of interest rates● Prime rate, discount rate, T-bill rate, treasury
bond rate, mortgage rate, corporate bond rate, certificate of deposit rate
● Changing interest rates● High amount saved lower demand for $
Lower interest rates● Higher spending more demand higher
interest rates
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 22
Checkpoint
● How do interest rates affect business activities in our economy?● Interest rates can encourage or discourage borrowing
and spending. ● Lower interest rates allow consumers greater
spending power, which increases demand, productivity, and employment.
● Businesses often pass on the cost of higher interest rates to consumers.
© 2012 Cengage Learning. All Rights Reserved.SLIDE 23
2-3 Other Measures of Business Activity
Goal 1 Discuss investment activities that promote economic growth.
Goal 2 Explain borrowing activities by government, business, and consumers.
Goal 3 Describe future concerns of economic growth.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 24
KEY TERMS
● capital project● stock● bond● budget surplus● budget deficit● national debt
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 25
INVESTMENT ACTIVITIES
● These activities provide funds for capital projects● Personal savings
● Low risk, low return (usually <1%)
● The stock market – ownership in corporations● Higher potential risk for higher potential return● Prices determined by supply and demand
● The bond market – loans to corps./govt.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 26
Checkpoint
● Name some examples of capital projects.● Capital projects include the purchase of any
item a business will use over an extended period of time such as land, buildings, and equipment.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 27
BORROWING
● Government debt – necessary to fund projects● Surplus vs. deficit● Surplus helps chip away at national debt
● Business debt● Loans, bonds, mortgages
● Consumer debt● Overly convenient or necessary evil?
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 28
Checkpoint
● What is the cause of a budget deficit?● A budget deficit occurs when a government or
organization spends more than it takes in.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 29FUTURE ECONOMIC
CHALLENGES
● Emerging markets● What is an emerging market right now?
● Weak economies● Stronger ones usually help
● Consumer preferences and behavior● Know your target market
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 2SLIDE 30
Checkpoint
● What economic challenges do countries face in the future?● Future economic concerns for any country
include the ability to increase its output and provide a means for its citizens to meet the basic needs of food and shelter, adequate health care, education, transportation, employment, and safety.