ECONOMICS – DAY #2BUSINESS MANAGEMENT

ECONOMIC INDICATORS

Objective

We will identify basic micro- and macro-economic concepts in order to understand economic indicators.

Essential Questions

What are economic indicators?

Explain the purpose of measuring economic indicators.

Identify examples of leading and lagging economic indicators.

HOW DO YOU MEASURE UP?

Student performance is measured by:

GPASATClass Rank

Baseball performance is measured by:

Batting AverageStrikeouts

ECONOMIC INDICATORSEconomic indicators are figures used

to measure a country’s economic performance.

We measure things like: how much (goods & services) a country

produces whether a country’s economy is growing how a country’s economy compares to

others

EXAMPLES OF ECONOMIC INDICATORS

RETAIL SALES INDEXMeasures goods

sold within the retail industry

Does not include money spent on services

Shows if consumers are spending or saving

GROSS DOMESTIC PRODUCTGDP is the total

market value of all goods & services produced within in a country in a given year.

Changes show whether the economy is growing or slowing

HOW DOES THE U.S. COMPARE?

GDP FUN FACTS

Released the last day of each quarter

Recently the U.S. economy has grown around 2.5 – 3 % per year.

INFLATION RATEInflation is a

general increase in the price of goods & services.

Indicates that the cost of living is getting more expensive!

Inflation Calculator

INFLATION FUN FACTSMeasured by the

Consumer Price Index (CPI) which samples prices at different stores

Occurs when supply is less than demand

Federal Reserve decides interest rates in order to adjust for inflation.

A LOOK AT INFLATION ACROSS U.S. HISTORYWORKSHEET ACTIVITY

UNEMPLOYMENT RATEMeasures number

of people who are willing & able to work but cannot find a job

Shows whether economy is picking up or slowing down

CLOSING TASK #11) What is the purpose of measuring

economic indicators?2) Explain the difference between

leading indicators and lagging indicators – include an example of each.

3) What does GDP tell us about the economy?

4) What does the inflation rate tell us?5) What does unemployment tell us?

THE BUSINESS CYCLE

Objective

We will identify basic micro- and macro-economic concepts in order to understand the business cycle.

Essential Questions

What is the business cycle?

What are the stages of the business cycle?

How is each stage of the business cycle characterized?

WHAT IS THE BUSINESS CYCLE?Economies naturally go through ups and

downs.The business cycle is the rise and fall of

economic activity over time.In the United States, some decades have

been characterized by a drop in economic activity & a rise in unemployment. 1930s, 1950s, 1970s, 2000s Slumps followed by new waves of increased

productivity and increased GDP

STAGES OF THE BUSINESS CYCLE

PROSPERITYAlso known as the

“peak”Higher wages, more

jobs available, higher demand for goods & services

Unemployment is low, GDP is high

People are spending!

RECESSIONEconomic activity

slows down – less production of goods, downturns in industry

GDP decreasing, unemployment increasing

People are starting to save!

DEPRESSION / TROUGHDeep recession that

lasts for years and affects the entire economy

Unemployment is high, GDP is low

Government starts trying to “stimulate” the economy

People are saving!

RECOVERY / EXPANSION

Rise in business activity after a recession or depression

Innovation occurs – businesses start bringing out new products & services

Unemployment decreasing, GDP increasing

ENTREPRENEURS WHO ROSE FROM THE ASHESMANY OF TODAY’S FORTUNE 500 COMPANIES CAME FROM HARD TIMES…

GENERAL MOTORSWilliam C. Durant

High school drop-out working as a Buick manager in Detroit

Acquired Oldsmobile, Cadillac & Pontiac

Launched Chevrolet (later joined GM)

The Panic of 1907

PLAYBOY ENTERPRISESHugh Hefner

Former employee of Esquire who quit when his boss refused to give him a $5 raise

Designed his own magazine with the help of his friends

Recession of 1953

SIRIUS SATELLITE RADIO

Robert Briskman

Former NASA engineer

COO at Geostart (satellite messaging company)

Figured out how to broadcast digital radio signals via satellite

Merged with XM Satellite Radio in 2008 to provide commercial-free radio 24 hours/day

Early 1990s Recession

CLOSING TASK #21) What is the business cycle?2) What are the stages of the business

cycle?3) Identify which stage of the business cycle

is characterized by the following indicators.− low GDP, high unemployment− declining GDP, rising unemployment− rising GDP, declining unemployment− high GDP, low unemployment

ECONOMIC CYCLES

Objective

We will identify basic micro- and macro-economic concepts in order to understand the effect of economic cycles.

Essential Questions

Which industries are particularly affected by shifts in economic cycles?

Describe durable goods and provide examples.

Explain the difference between inelastic and elastic demand.

SHIFTS IN ECONOMIC CYCLES

While the economy as a whole is negatively impacted by economic shifts, certain companies & industries are particularly sensitive to changes overall.

DURABLE GOODSConsumers tend to cut back on the

purchase of certain products if the ones they have already can last through the recession.

Manufacturers of durable goods like cars, appliances, and electronics are among the most impacted by economic shifts.

EXAMPLE: TRANSPORTATIONGM, Ford, Chrysler, and other car companiesConsumers put off buying new cars or they purchase less expensive models.

United Airlines & British AirwaysAirlines suffer in recessions because people travel less overall.

FedEx & UPSVolume in mailed packages declines during recessions.

EXAMPLE: MANUFACTURING

Whirlpool & SearsHome appliance manufacturers are subject to decline in demand during recessions.Demand for appliances is tightly linked to new home sales, which slows during a recession.

EXAMPLE: CONSTRUCTION

Home Depot & LowesPerformance of home improvement retailers is also correlated to the housing market.

OTHER INDUSTRIES…

Investment Services

HotelsLuxury Commodities

Advertising Firms

INELASTIC DEMANDCertain goods are relatively

protected from the impact of shifts in economic cycles.

Goods that have relatively inelastic demand with respect to income are generally shielded.

You still have to eat, drive to work, etc.

EXAMPLES OF INELASTIC DEMAND

Food Manufacturers & Retailers

Addictive Substances

Medicine & Medical Equipment

Utilities

CLOSING TASK #31) Describe durable goods.2) Provide an example of an industry

that is significantly impacted by economic shifts.

3) Describe inelastic demand.4) Provide an example of an industry

that is relatively unaffected by economic shifts.