Essential Standard 1.00
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Essential Standard 1.00
Understand the role of business in the global economy.
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Objective 1.02
Understand economic conditions
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• Measuring economic activities• Classifying economic conditions
Topics
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Measuring Economic Activities
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Measuring Economic ActivitiesGross Domestic Product (GDP)
• GDP: a country’s total dollar value of all final goods and services produced in one year.– Most commonly used measure to determine a country’s
overall economic growth Growth in GDP
• Major categories included in GDP– Consumer spending: for food, clothing, housing, other
consumer items – Business spending: for buildings, equipment, inventory– Government spending: for employee pay, and to purchase
supplies and other goods and services– Exports & imports:– Exports out of the country (minus) Imports into the country
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GDP per capita
GDP per capita = output per person
=_________GDP__________Total Population of the Country
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Measuring Economic ActivitiesLabor Activities
• Unemployment rate: includes the people of the labor force that are not working, but are willing to work, are looking for work, but can’t find a job.
• Productivity means …The production output in relation to a unit of input (by a worker.) Gains in Productivity Result in Record Output
– What can contribute to employees increasing their production?• Equipment, technology, training, management 7
Measuring Economic ActivitiesLabor Activities
–U.S. 12/10 rate=9.4% • represents over 14,500,000 people
–North Carolina’s 12/10 rate=9.8%• North Carolina’s 07/10 rate=9.8%
– U.S. lowest: North Dakota 3.8%• Lowest area unemployment: Lincoln, Nebraska
3.5%– U.S. highest: Nevada 14.5%
• Highest area unemployment: El Centro, CA 28.3%–Raleigh/Cary rate=7.8%
• 07/10=8.4%• Current highest NC is Rocky Mt.=12.6%
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Measuring Economic ActivitiesConsumer Spending
Measurements of consumer spending:
• Personal Income: includes the total wages and salaries plus investment income and government payments to individuals.
• Retail Sales: sales of durable and non durable goods and services purchased by consumers (autos, building materials, furniture, gas, $ spent at restaurants, etc) 9
Measuring Economic ActivitiesInvestment (for the future)
• The money used for capital projects (land, buildings, equipment, research) comes from three main sources:• Personal savings:– People and businesses deposit money in bank savings
accounts. Banks then lend this money to businesses which use the borrowed money to buy equipment or products for their businesses.
– Savers, in turn, earn interest on money used by companies and other individuals.
– What happens if people don’t save??
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Measuring Economic ActivitiesInvestment (for the future)
• The money used for capital projects (land, buildings, equipment, research) comes from three main sources:• The stock market:– Stock represents ownership in a company. If a company
wants to expand, it can sell stock to raise money.– Higher earnings for businesses increases their value, which
causes a demand for people wanting to buy the businesses stock.
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Measuring Economic ActivitiesInvestment (for the future)
• The money used for capital projects (land, buildings, equipment, research) comes from three main sources:• The bond market:– Bonds represent debt for a company. If a company wants
to expand, it can sell bonds to raise money. • Bondholders purchase the bonds, and earn interest on the money
they have loaned to businesses and the government.• Eventually, the company pays the bondholders back their money,
with interest.
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Borrowing Activities …
By Governments: If governments want to spend more than they brings in through taxes and fees, they may have to borrow money. This overspending is known as a budget deficit. U.S. National Debt
Companies may borrow money to start up or expand. Using borrowed funds efficiently can 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
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Classification of Economic Conditions
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PROSPERITY RECESSION
DEPRESSION
RECOVERY
Situation PROSPERITY RECESSION DEPRESSION RECOVERY
Employment trend
Labor: People who want to work are working; unemployment lowWages: Good
Unemployment increases as workers are laid off.
Prolonged period of high unemployment
Unemployment decreases companies begin to rehire workers
Supply and demand of goods and services trend/GDP
GDP: IncreasingConsumer Demand: Increasing
Demand decreases as people lose jobs;GDP: growth slows for 2 or more quarters
Demand for products and services is very weak; GDP falls rapidly
Demand increases; GDP begins to rise
Possible actions of businesses
Profits strong as is productionCompanies hiring & expanding (Macy’s may open more stores)
Businesses decrease production as demand decre ases; profits suffer Businesses may strategize on ways to stimulate demand for goods & services
Business failures and closings increase; companies make changes (such as moving employees from full time to part time to decrease hours and reduce benefits) just to stay open
Businesses begin rehiring and increasing production; companies may again begin recruiting efforts at colleges
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%
Over a three-year period, how has the
income been impacted by the
cost of a gallon of milk?
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Consumer Prices
• Inflation • Causes of inflation• Consumer Price Index (CPI) • Deflation• Causes of deflation
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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?
• How do interest rates impact businesses?
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