UNDERSTANDING THE ECONOMY Lesson 3-2
Dec 27, 2015
UNDERSTANDING THE ECONOMYLesson 3-2
Understanding the Economy
Objectives• List the goals of a healthy economy• Explain how an economy is measured• Analyze the four key phases of the business
cycle
Key Termsproductivitygross domestic product (GDP)gross national product (GNP)inflationconsumer price index (CPI)producer price index (PPI)business cycleexpansionrecessiondepressionrecovery
Marketing Essentials Chapter 3, Section 3.2
Understanding the Economy
Study Organizer
Use the chart like this one and use it to take notes about economic measurements.
Marketing Essentials Chapter 3, Section 3.2
The Economy and Marketing
To have a useful SWOT analysis, you need to consider the economic factors that will influence your marketing planning:• Economy• Consumers• Businesses• Government
Marketing Essentials Chapter 3, Section 3.2
When Is an Economy Successful?
A healthy economy has three goals:• Increase productivity• Decrease unemployment• Maintain stable prices
Marketing Essentials Chapter 3, Section 3.2
When Is an Economy Successful?
Six Key economic measurements
Purpose: used to determine economic strength:• Labor productivity• Gross domestic product (GDP)• Gross national product (GNP)• Standard of living• Inflation rate• Unemployment rate
Marketing Essentials Chapter 3, Section 3.2
Labor Productivity X output per worker hour that is measured over a defined period of time, such as a week, month, or a year
Businesses can increase productivity by:
• Investing in new equipment or facilities for higher efficiency
• Providing additional training or financial incentives for workers
• Reduce their work force and increase the responsibilities of those who remain
Labor Productivity:
Two key concepts related to increasing productivity are:• Specialization• Division of labor
Through Specialization:• when individual workers focus on single tasks• each worker is more efficient and productive
Through Division of labor• divides the production process into separate tasks• workers specialize in specific tasks • the group as a whole becomes more productive
Labor Productivity
Marketing Essentials Chapter 3, Section 3.2
Gross domestic product (GDP) X is the output of goods and services produced by labor and property located within a country.
The GDP is made up of:
• Private investment• Government spending• Personal spending• Net exports of goods and services• Change in business inventories
Gross Domestic Product
Gross national product (GNP) X is the total dollar value of goods and services produced by a nation, including the goods and services produced abroad by U.S. citizens and companies
• GNP, it is not where the production takes place but who is responsible for it
• U.S. switched to using the GDP to measure its economy in 1991
Gross National Product
Honda has a plant in the U.S.• Is the output of this plant included in the GNP
or the GDP of the U.S.?- GDP
• Honda is owned by Japan, is this included in the GNP of the U.S.?
-no as it is not owned by the U.S.
Ford has a plant in Mexico • Are cars produced in Mexico included in the
GDP or the GNP or both for the U.S.?– GNP
Standard of living is a measurement of the amount and quality of goods and services that a nation’s people have
• Figure that reflects their quality of life• To calculate the standard of living:
• Divide the a country’s GDP or GNP by its population to get the per capita GDP or GNP
Standard of Living
Marketing Essentials Chapter 3, Section 3.2
Inflation X refers to a period of rising prices on goods & services
Video:
What Causes Inflation?When a country prints more money than what is justified by their wealth
What happens to the value of the dollar when this occurs?It goes down
What is the target amount of inflation increase by banks?2 %– 3 %
Inflation
Inflation X refers to a period of rising prices on goods & services
Low inflation rate (1 - 5 percent) • shows that an economy is stable
Double-digit inflation rate• devastates an economy• country’s money losses its value
During high inflation:• Prices increase and buying power goes down• People on fixed incomes especially hurt (elderly)• To combat inflation: governments raise interest rates to
discourage borrowing money and slow economic growth
Inflation
Two measure of inflation used in the U.S
1. Consumer price index (CPI) X measures the change in price (of consumer goods & services) over a period of time
• of some 400 specific retail goods and services used by the average urban household
• It is also called the cost of living index
2. Producer price index (PPI) X measures wholesale price levels in the economy
• It is often a trendsetter, as producer prices generally get passed along to the consumer
Inflation
Unemployment Rate: Jobless rate
• Higher unemployment = greater chance of economic slowdown
• Lower the rate = greater chances of economic expansion
Unemployment Rate
The Conference Board: is a private business research organization made up of businesses who work together to assess the economy
They have three additional indicators to measure the economy:• Consumer confidence index• Consumer expectations index• Jobs index• Wages and Payroll jobs
Other Economic Indicators and Trends
Marketing Essentials Chapter 3, Section 3.2
The cycle of economic growth and decline is called the business cycle
Business cycle X Recurring changes in economic activity, such as the expansion (growth) and contraction (slow down/decline) of an economy
Consists of four Stages:
• Expansion• Recession• Trough• Recovery
The Business Cycle
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Expansion X is a time when the economy is flourishing
Characterized by:
• Low unemployment• High output of goods and services• High consumer spending
• Good time to open newbusinesses
• Will peak at the end and a recession period begins
Expansion
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Recession X is a period of economic slowdown that lasts for at least six months.
Characterized by:
• Reduced workforces and higher unemployment• R&D cut back, expansion on hold• Lower consumer spending• Low production of goods
and services
Recession
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A depression X is a period of prolonged recession
Characterized by:• Businesses shut down• Impossible to find jobs• Unemployment very high• Consumer spending is very low• Production of goods and services is down
significantly
Depression
TroughX when the economy reaches its lowest point in a recession, then begins to rise
Trough
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Recovery X is the term used to signify a period of renewed economic growth following a recession or depression. This time is characterized by:• Increasing GDP• Increasing Sales• Reduced unemployment• Increased consumer spending• Moderate expansion of busineses
recovery
A period of renewed economic growth following a recession or depression.
The Business Cycle
Marketing Essentials Chapter 3, Section 3.2
The business cycle can be affected by the actions of:• Businesses• Consumers• Government
These things are, in turn, affected by the business cycle
The Business Cycle
Marketing Essentials Chapter 3, Section 3.2
Understanding the Economy
Identifying Economic MeasurementsS
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3.2
CHAPTER 1 REVIEWSECTION 3.2 REVIEW