Essential Standard 1.00

Understand the role of business in the global economy.

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Objective 1.02Understand economic conditions

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Measuring economic activities

Classifying economic conditions

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Topics

Measuring Economic ActivitiesGDP is the highly used measurement to determine a country’s overall economic output. GDP is a country’s total dollar value of all final goods and services produced in one year.

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GDP Major categories of GDP

◦ Individual spending◦ Business spending◦ Government spending◦ Exports & imports

Name some products or services you have purchased or from which you have received benefits.

Which component of GDP would you classify the product or service you named?

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Gross Domestic Product (GDP)

GDP per capita – output per person

=_________GDP__________Total Population

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GDP per capita

Unemployment rate◦ the people of the labor force that are unemployed

Productivity means …◦ What can help you be more productive in a

computer lab?◦ What can contribute to employees increasing

their production?◦ equipment, technology, training, and

management

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Labor Activities

Consumer SpendingMeasurement of

consumer spending:

Personal Income

Retail Sales

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Consumer Spending Personal Income the total wages and

salaries plus investment income and government payments to individuals.

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Consumer Spending Retail Sales

the sales of goods and services purchased to indicate the spending patterns

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Investment Activities The money used for capital projects comes

from three main sources:• Personal savings• The stock market• The bond market

How does each investment activity impact economic growth?

What are some examples of investment activities?

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Borrowing Activities … by

◦ Government ◦ Businesses

How can government borrowing lead to a budget deficit?◦ schools, public highways, and parks

How can using borrowed money wisely impact businesses?

result in an increase in sales and profits

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Measuring Economic Activities

GDP GDP Per capita

Labor ActivitiesConsumer Spending

Investment Activities

Borrowing Activities

Classification of Economic Conditions

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ProsperityEmployment rate and demand for products and services are high.

RecessionUnemployment rate is

increasing and demand for products

and services are lowering.

DepressionUnemployment rate is high and demand for products and services is lowering.

RecoveryUnemployment rate is lowering and demand for products and services is increasing.

Business Cycle

Year 1 2 3

Income

Income percent change from year 1

$36,000

n/a

$38,000

5.6%

$21,000

-42%

Gallon of milk cost

Gallon of milk cost percent change from year 1

$2.49

n/a

$2.99

20%

$3.19

28%

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Over a three-year period, how has the

income been impacted by the

cost of a gallon of milk?

The buying power for the income for years three was decreased

Inflation ◦ the demand for products and services exceeds

the supply, which may cause an increase in prices Causes of inflation Consumer Price Index (CPI) Deflation

◦ the demand for products and services exceeds the supply, which may cause an increase in prices

Causes of deflation

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Consumer Prices

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Interest Rates

Types:◦ Prime rate◦ Discount rate◦ T-bill rate◦ Treasury bond rate◦ Mortgage rate◦ Corporate bond rate◦ Certificate of deposit rate

What is the primary purpose of each?

Research these ?

• How do interest rates impact businesses?

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Interest Rates

Types:◦Prime rate usually made available to banks’ best

customers ◦Discount rate

usually made available to banks’ best customers

◦T-bill rate the yield for short-term (13 weeks)

government debt.

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Interest Rates

◦Treasury bond rate the yield for long-term government debt.

◦Mortgage rate the amount borrowers pay for home loans

◦Corporate bond rate the cost of loans for large US corporations

◦Certificate of deposit rate rate paid for deposits for a period of time

( 6, 12, or 18 months).