Essential Standard 1.00

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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