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UNDERSTANDING THE ECONOMYChapter 3.2

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ECONOMIC INDICATORS

3 Goals of a successful economy

1.Increase productivity2.Decrease

unemployment3.Maintain stable

prices

Sports, Entertainment and Recreation Marketing 3

Key Economic Measurements

Labor Productivity How much a worker gets done per hour over a given

amount of time (a day, month, year, etc.)

How can a business increase their productivity?

Invest in new equipment/technology

Provide additional training for employees

Provide incentives to employees

Higher productivity improves company profits4

Specialization and Division of Labor

Part of Labor Productivity Ex: An assembly line

Part of the finished product is completed by a person who specializes in that step of the production

The theory is that workers are more productive because they are specialists in that one stage

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Key Economic Measurements

Gross Domestic Product Measures the entire nation’s

production output It is made up of

Private investment Government spending Personal spending Net exports of goods and services Change in business inventories

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Key Economic Measurements

Gross National Product (GNP) The total dollar value of goods and

services produced by a nation It is not where production takes

place, but who is responsible for it Was the primary measurement of

productivity before GDP (1991)

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THE BUSINESS CYCLE

What is it?The cycle of economic growth and decline

of a given economy

There are FOUR stages:Expansion

Recession

Depression

Recovery

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ExpansionFlourishing EconomyConsumers have a

hopeful outlook about business and the economy

Good time to start a business

Period of prosperityLow unemploymentIncrease in output of

goods and servicesHigher consumer

spending

Expansion continues until it reaches a peak

This peak signifies the end of the expansion and the beginning of a recession

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RecessionEconomic Slowdown

Lasts at least 6 months

Significant decline in economic activity

Companies reduce workforce

Consumers have less money to spend Recession ends once an

economy reaches its trough (lowest point) and then begins to rise

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Depression

Prolonged Recession

Becomes nearly impossible to find a job

Many businesses are forced to shut down

Consumer spending is very low

Unemployment is very highProduction of goods and

services is downMany people cannot afford to

meet their basic needs

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Recovery

Renewed Economic GrowthThis is where the

cycle begins againBusiness picks upPeople start to find

jobsDemand for goods

and services increases

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The Business Cycle

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Expansion

Recession

Depression

Recovery

Peak

Trough