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UNDERSTANDING THE ECONOMYChapter 3.2
OBJECTIVES
0422.9.1 Identify the various measurements used to analyze the economy.
0422.9.8 Explain the effects of the business cycle on consumers, businesses and government.
GOALS OF A HEALTHY ECONOMY
1. Increase Productivity 2. Decrease Unemployment 3. Maintain Stable Prices
GRAPHIC ORGANIZER KWL CHART
ECONOMIC MEASUREMENTS
Economic Measurements, called indicators, can indicate whether an economy is weak or strong.
BRAINSTORM
Come up with some examples of Positive and Negative Economic Indicators
ECONOMIC MEASUREMENTS
1. Labor Productivity 2. Gross Domestic Product 3. Standard of Living 4. Inflation Rate 5. Unemployment Rate
GRAPHIC ORGANIZER
Make an organizer listed the 5 measures from previous slide.
Example:
Inflation Definition of Inflation Current Inflation Rate Web site were you found the current Inflation
Rate
*ECONOMIC MEASUREMENTS
Productivity – output per worker hour that is measured over a defined period of time
Ways to increase productivity New equipment and facilities Additional training Financial incentives Reduce workforce and increase worker
responsibility Specialization and division of labor http://www.bls.gov/lpc/
COLLABORATIVE PAIRS
You have been asked to suggest ways to increase productivity in a company mailroom. Each day the mailroom handles approx. 500 pieces of mail. These are sorted and delivered to 100 employees. With partner list and discuss improvements. Write a memo communicating suggestions to managers.
ECONOMIC MEASUREMENTS
Gross Domestic Product (GDP) – output of goods and services produced by labor and property located WITHIN a country
Principal way of measuring output in U.S.
ECONOMIC MEASUREMENTS
Gross Domestic Product is made up of: Private Investment Government Spending Personal Spending Net Exports of Goods and Services Change in Business Inventory Current dollar and real GDP
*ECONOMIC MEASUREMENTS
Standard of Living – measurement of the amount and quality of goods and services that a nation’s people have
Divide GDP by population to get per capital GDP
High standard of living associated with high level of productivity
*ECONOMIC MEASUREMENTS
Additional Measures of Standard of Living Social services offered to citizen (free
education and health care provided by government)
Number of households per 1000 inhabitants with durable goods (washing machine, refrigerator, dishwasher, auto)
ECONOMIC MEASUREMENTS
Inflation Rate – rising prices Low rate – 1% to 5% -- stable economy Double Digit – 10% or higher – devastates an
economy Controlling inflation is major goal of
government Inflation Calculator
Current Inflation Rate
ECONOMIC MEASUREMENTS
When inflation rises Government raises interest rates Discourages borrowing money Slows down the economy Brings down inflation rate
ECONOMIC MEASUREMENTS
Inflation Measures Consumer Price Index (CPI)—measures the
change in price of 400 specific retail goods and services
Producer Price Index (PPI) – measures wholesale price levels Producer prices increases passed to consumer
http://www.bls.gov/cpi/
ECONOMIC MEASUREMENTS
Unemployment Rate – jobless rate Higher the rate – greater chances of
economic slowdown Lower the rate – greater chances of economic
expansion (growth) More people work Spend more money Pay more taxes Less social services State unemployment rates
ECONOMIC MEASUREMENTS
Other Economic Indicators and Trends Conference Board – private research
organization Consumer Confidence Index Consumer Expectations Index Jobs Index
Poll consumers about job perceptions, personal finance, buying conditions
ECONOMIC MEASUREMENTS
Retail Sales Rate of Housing Starts Sale of Trucks and Automobiles Wages and New Payroll Jobs
ASSIGNMENT
Prepare a graphic organizer showing the phases of the Business Cycle
Include indicators of each cycle with the cycle name
Business Cycle consists of recurring changes in economic activity
BUSINESS CYCLE
*THE BUSINESS CYCLE
Expansion or Prosperity – economy is flourishing
Low unemployment Increased production of goods & services Consumer spending is high New businesses start or expand
THE BUSINESS CYCLE
Recession – economic slowdown up to 6 months
Companies reduce workforce Consumers spend less Businesses produce fewer goods and
services Research & development is cut back Plans for expansion are put on hold
THE BUSINESS CYCLE
Depression – prolonged recession Great Depression of 1930’s Unemployment very high – almost impossible
to find a job Businesses shut down Consumer spending is very low Production of goods & services down Poverty results
THE BUSINESS CYCLE
Recovery – renewed economic growth following recession or depression
GDP begins to increase Consumers spend more Unemployment declines Demand for goods & services increases Moderate business expansion
FACTORS THAT AFFECT BUSINESS CYCLE
Business Consumers Government
WHERE ARE WE NOW?
Is the recession over?
FACTORS THAT AFFECT BUSINESS CYCLE
Business Expands (hire workers) during Prosperity and
Recovery Cut back (lay off workers) during Recession
and Depression
FACTORS THAT AFFECT BUSINESS CYCLE
Consumers During Recession
Fear losing job or decrease in wages Cut back spending
During Prosperity or Recovery Spend more money on material goods and luxury
item Causes business to produce more
*FACTORS THAT AFFECT BUSINESS CYCLE
Government – influence through policies and programs
Recession – Economy needs a boost Reduce interest rates Cut taxes Institute federal programs to spark economy
FACTORS THAT AFFECT BUSINESS CYCLE
Federal Reserve lowers interest rates of encourage spending
If inflation is high Raise interest rates of discourage buying on
credit
MULTICULTURAL ACTIVITY
Textbook page 66 – Global Market China Anxiously Seeks a Soft Economic
Landing Critical Thinking Questions How do you classify China politically and
economically? What is its new role in the global economy?
ASSIGNMENT
Vocabulary Review – workbook page 19
Writing Summary Assignment: Textbook page 69 Questions # 21, 22, 23, 24 & 25
REVIEW
Complete the KWL Chart by completing the last column – What I learned about the economy.
