ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 1 of 54

Why It’s ImportantWhy It’s Important

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 2 of 54

Measuring Economic Activity Measuring Economic Activity

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 3 of 54

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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 4 of 54

Gross Domestic Product (GDP) Gross Domestic Product (GDP) One way of telling how well an economy is performing is to determine how many

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 5 of 54

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 6 of 54

Gross Domestic Product (GDP) Gross Domestic Product (GDP) To calculate the GDP, economists compute the sum of goods and services.

continued

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 7 of 54

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

• ________ goods and services• __________ goods and services• ___________ goods and services• Goods and services

_________________________

Economists include four main areas in calculating the GDP:

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 8 of 54

Gross Domestic Product (GDP) Gross Domestic Product (GDP) The GDP doesn’t include the goods and services that aren’t reported to the government.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 9 of 54

Gross Domestic Product (GDP) Gross Domestic Product (GDP) The standard of living is the

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 10 of 54

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?

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 11 of 54

Graphic OrganizerGross Domestic ProductGross Domestic Product

Graphic OrganizerGraphic Organizer

ConsumerConsumergoods goods

andandservicesservices

BusinessBusinessgoodsgoods

andandservicesservices

GovernmentGovernmentgoodsgoods

andandservicesservices

GoodsGoodsandand

servicesservicessold tosold tootherother

countriescountries

+ =++GrossGross

DomesticDomesticProductProduct

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 12 of 54

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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 13 of 54

Unemployment Rate Unemployment Rate There are different reasons for being unemployed, including:

• ______________• ______________• ______________• ______________

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 14 of 54

Unemployment Rate Unemployment Rate Changes in the unemployment rate show whether an economy is picking up or slowing down.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 15 of 54

Rate of Inflation Rate of Inflation Inflation is

Inflation can happen when an economy actually becomes too productive.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 16 of 54

Rate of Inflation Rate of Inflation As the demand for goods goes up, producers raise their prices.

To pay the higher prices, workers demand higher wages.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 17 of 54

Rate of Inflation Rate of Inflation When wages go up, producers raise prices again to pay for the higher wages, and so on.

This situation can spiral out of control and lead to hyperinflation.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 18 of 54

Rate of Inflation Rate of Inflation Deflation

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 19 of 54

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. (Federal Reserve)

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 20 of 54

National Debt National Debt When the government ________________________________________, the difference in the amount is called the budget deficit.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 21 of 54

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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 22 of 54

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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 23 of 54

The Business Cycle The Business Cycle Over long periods of time economic changes seem to form patterns.

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 24 of 54

The Business Cycle The Business Cycle The four phases of the business cycle are:

• __________ • __________• __________• __________

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 25 of 54

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?

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 26 of 54

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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 27 of 54

Prosperity Prosperity Prosperity is a peak of economic activity.

Unemployment is low, production of goods and services is high, and new businesses open.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 28 of 54

Prosperity Prosperity Prosperity, however, does not last. Any number of things can change.

Companies produce too much, people stop buying, or inflation rises dramatically.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 29 of 54

Recession Recession During a recession,

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 30 of 54

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

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 31 of 54

Recession Recession The ripple effect is when a recession in one industry leads to a recession in other industries.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 32 of 54

Depression Depression A deep recession that affects the entire economy and lasts for several years is called a depression.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 33 of 54

Depression Depression During a depression there is high unemployment, low production of goods and services, and excess capacity in manufacturing plants.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 34 of 54

Depression Depression A depression can be limited to one country but usually spreads to related countries.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 35 of 54

Depression Depression The 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.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 36 of 54

Depression Depression During the Great Depression, the number of people out of work rose nearly 800 percent.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 37 of 54

Depression Depression During the Great Depression, many banks failed.

The money supply fell by one-third.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 38 of 54

Recovery Recovery A rise in business activity after a recession or depression is called a recovery.

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 39 of 54

Recovery Recovery During a recovery:

• _________________• _____________________________ _____________________________

continued

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 40 of 54

Recovery Recovery

• The new demand for goods and services stimulates more production

• The GDP grows• New businesses open

During a recovery:

ChapteChapterr

33

Introduction to Business, Economic Activity in a Changing World Slide 41 of 54

Recovery Recovery A recovery can take a long time or it can happen quickly.

During World War II, the United States recovered from the Great Depression much faster because of the demand for war production.