Intro Ch. 2Intro Ch. 2

Economic ActivityEconomic Activity

Ch. 2-1Ch. 2-1Measuring Economic ActivityMeasuring Economic Activity

GDP- Gross Domestic Product- The total dollar GDP- Gross Domestic Product- The total dollar value of all goods and services produced in a value of all goods and services produced in a country during one year.country during one year.

Components of GDPComponents of GDP– Consumer spending for food, clothing, housing, etc.Consumer spending for food, clothing, housing, etc.

– Business spending for buildings, equipment, etc.Business spending for buildings, equipment, etc.

– Gov’t spending to pay employees and buy suppliesGov’t spending to pay employees and buy supplies

– The exports of a country less the imports into the The exports of a country less the imports into the country.country.

GDP per capita- The total output per GDP per capita- The total output per person. Total GDP divided by the person. Total GDP divided by the population of the country.population of the country.

And increase in GDP means that the And increase in GDP means that the economy is growing.economy is growing.

Unemployment- The portion of people Unemployment- The portion of people in the labor force who are not working.in the labor force who are not working.– Must be looking for work and unable to Must be looking for work and unable to

find a job in order to be considered find a job in order to be considered unemployed.unemployed.

Productivity- The production output Productivity- The production output in relation to a unit of input.in relation to a unit of input.

Personal Income- Salaries and wages Personal Income- Salaries and wages a well as investment income and a well as investment income and government payments to individuals.government payments to individuals.

Retail Sales- Sales of durable and Retail Sales- Sales of durable and nondurable goods bought by nondurable goods bought by consumers.consumers.

Ch. 2-2Ch. 2-2Economic Conditions ChangeEconomic Conditions Change

Business cycle- Business cycle- – ProsperityProsperity– RecessionRecession– DepressionDepression– RecoveryRecovery

Prosperity- Prosperity- – Unemployment is downUnemployment is down– GDP is upGDP is up– Demand is upDemand is up– Productivity is upProductivity is up

Recession- Period in which demand Recession- Period in which demand decreases, production decreases, GDP decreases, production decreases, GDP slows, unemployment grows in 2 or slows, unemployment grows in 2 or more quarters of the calendar year.more quarters of the calendar year.

Depression- Marked by a prolonged Depression- Marked by a prolonged period of high unemployment, weak period of high unemployment, weak consumer sales, and business failures.consumer sales, and business failures.

Recovery- Unemployment drops, Recovery- Unemployment drops, demand increases, GDP rises, demand increases, GDP rises, productivity rises.productivity rises.

Inflation- An increase in the general level of Inflation- An increase in the general level of prices.prices.– The buying power decreases because the value The buying power decreases because the value

of the dollar decreases.of the dollar decreases. Demand is greater than the supplyDemand is greater than the supply Prices of goods and services increase at a greater level Prices of goods and services increase at a greater level

than wagesthan wages

– Inflation isn’t always a bad thing. 2-3% inflation Inflation isn’t always a bad thing. 2-3% inflation during a year can stimulate the economy. during a year can stimulate the economy. Wages go up, unemployment stays low.Wages go up, unemployment stays low.

CPI- Consumer Price Index- Compares CPI- Consumer Price Index- Compares prices in one year with prices in some prices in one year with prices in some earlier base year in order to calculate earlier base year in order to calculate inflation.inflation.

Deflation- Decrease in the general Deflation- Decrease in the general level of prices.level of prices.

– Usually occurs in periods of recession Usually occurs in periods of recession and depression.and depression.

– Prices of products are lower, but people Prices of products are lower, but people have less money to spend.have less money to spend.

Ch. 2-3Ch. 2-3Other Measures of Business Other Measures of Business

ActivityActivity Capital spending- Money spent by a Capital spending- Money spent by a

business for an item that will be used business for an item that will be used over a long period.over a long period.

Capital Project- Spending by Capital Project- Spending by businesses for items such as land, businesses for items such as land, building, equipment, and new building, equipment, and new products.products.

Stock- Represents ownership in a Stock- Represents ownership in a corporationcorporation

Bond- Represents debt of an organizationBond- Represents debt of an organization

Budget Surplus- When a government Budget Surplus- When a government spends less than it takes in.spends less than it takes in.

Budget Deficit- When a government spends Budget Deficit- When a government spends more than it takes in.more than it takes in.

National Debt- The total amount owed by National Debt- The total amount owed by the federal governmentthe federal government

Business Debt- Loans, bonds, and Business Debt- Loans, bonds, and mortgages are common borrowing mortgages are common borrowing methods used by businesses. methods used by businesses.

– Businesses must be wise in the amount of debt Businesses must be wise in the amount of debt that they incur. Business debt can be fine, as that they incur. Business debt can be fine, as long as plenty of research is done beforehand.long as plenty of research is done beforehand.

– Consumer Debt- Credit cards, car loans, Consumer Debt- Credit cards, car loans, mortgages, etc. are common ways that mortgages, etc. are common ways that consumers get into debt. Like with businesses, consumers get into debt. Like with businesses, debt in moderation isn’t always a terrible thing. debt in moderation isn’t always a terrible thing. However, if a consumer isn’t responsible, debt However, if a consumer isn’t responsible, debt can ruin their life.can ruin their life.