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Chapter 3 Economic Activity in aChanging World

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Why It’s ImportantWhy It’s Important

Economic activity affects everyday life. The history of the economy affects industries and people of today and tomorrow.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Key WordsKey Wordsgross domestic product (GDP) standard of living inflationdeflationbudget deficitnational debt budget surplusbusiness cycleprosperityrecessiondepressionrecovery

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Measuring Economic Activity Measuring Economic Activity

Economic indicators measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Gross Domestic Product (GDP) Gross Domestic Product (GDP)

The total value of the goods and services produced in a country in a given year is called its gross domestic product (GDP).

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Graphic OrganizerGross Domestic ProductGross Domestic Product

Graphic OrganizerGraphic Organizer

ConsumerConsumergoods goods

andandservicesservices

BusinessBusinessgoodsgoodsandand

servicesservices

GovernmentGovernmentgoodsgoodsandand

servicesservices

GoodsGoodsandand

servicesservicessold tosold tootherother

countriescountries

+ =++GrossGross

DomesticDomesticProductProduct

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Gross Domestic Product (GDP) Gross Domestic Product (GDP)

The standard of living is the amount of goods and services the average citizen can buy.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Figure3.1 GROSS DOMESTIC PRODUCT

The gross domestic product (GDP) is the output of goods and services produced in a country.

What percentage did the GDP increase from the end of Year 2 to the beginning of Year 3?

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Unemployment Rate Unemployment Rate The unemployment rate measures the number of people who 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.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Unemployment Rate Unemployment Rate

There are different reasons for being unemployed, including:

• Temporary• Seasonal• Changes in industry• Economic slowdown

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Rate of Inflation Rate of Inflation Inflation is a general increase in the cost of goods and services.

If this cycle continues, it can lead to hyperinflation.

As the demand for goods goes up, producers raise their prices. To pay the higher prices, workers demand higher wages.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Rate of Inflation Rate of Inflation

Deflation is a general decrease in the cost of goods and services.

When an economy produces more goods than people want, it has to lower prices and cut production.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Rate of Inflation Rate of Inflation

The United States tries to maintain a slow but steady rate of economic growth to avoid both inflation and deflation.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

National Debt National Debt

When the government spends more on programs than it collects in taxes, the difference in the amount is called the budget deficit.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

National Debt National Debt

The total amount of money a government owes is its national debt.

If the debt gets too large, a nation can become dependent on other nations or unable to borrow any more money.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

National Debt National Debt

If a nation spends less than its income, it has a budget surplus.

The government will probably use a surplus to cut taxes, reduce the national debt, or increase spending for certain programs.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

The Business Cycle The Business Cycle The rise and fall of economic activity over time is called the business cycle. The four phases are:

• Prosperity • Recession• Depression• Recovery

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Figure3.2 BUSINESS CYCLE MODEL

The repeated rise and fall of economic activity over time is called a business cycle.

What are the four phases of the cycle?

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

The Business Cycle The Business Cycle

In a global economy, in which several countries are trading goods and services with one another, one country’s economy can affect its trading partners’ economies.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Recession – more infoRecession – more info

There is a general drop in the total production of goods and services, so the GDP declines.

A recession can affect only one industry, related industries, or spread to the entire economy.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

Depression – an exampleDepression – an exampleThe stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression.• Between 1929 and 1933, GDP fell from approximately $103 billion to $55 billion.• The number of people out of work rose nearly 800 percent.• Many banks failed.• The money supply fell by one-third.• The Recovery - During World War II 1941+, the US recovered from the Great Depression much faster because of the demand for war production.

ChapterChapter 33

Introduction to Business, Economic Activity in a Changing World

How has the Internet changed the way people do business?