UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a...

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UNDERSTANDING THE ECONOMY Lesson 3-2

Transcript of UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a...

Page 1: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

UNDERSTANDING THE ECONOMYLesson 3-2

Page 2: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 3: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 4: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 5: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 6: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 7: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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:

Page 8: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 9: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 10: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 11: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 12: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 13: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 14: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

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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

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Unemployment Rate: Jobless rate

• Higher unemployment = greater chance of economic slowdown

• Lower the rate = greater chances of economic expansion

Unemployment Rate

Page 17: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 18: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Exp

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Exp

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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

Exp

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Exp

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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

Exp

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Exp

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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

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TroughX when the economy reaches its lowest point in a recession, then begins to rise

Trough

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Exp

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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

Page 24: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

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

Page 25: UNDERSTANDING THE ECONOMY Lesson 3-2. Understanding the Economy Objectives List the goals of a healthy economy Explain how an economy is measured Analyze.

Understanding the Economy

Identifying Economic MeasurementsS

ecti

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3.2

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CHAPTER 1 REVIEWSECTION 3.2 REVIEW