Unit AUnit ABusiness in a Changing WorldBusiness in a Changing World

Section 1.04

Economic Indicators and the Business Cycle

Measuring Economic ActivityMeasuring Economic Activity

Supply.– Represents how much the market can offer.

The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price.

– The relationship between price and how much of a good or service is supplied into the market is known as the supply relationship.

Measuring Economic ActivityMeasuring Economic Activity

Demand.– Refers to how much (quantity) of a product

or service is desired by buyers. The quantity demanded is the amount of a certain product people are willing to buy at a certain price.

– The relationship between price and quantity demanded is known as the demand relationship.

Measuring Economic ActivityMeasuring Economic ActivityGross Domestic Product

– The value of all manufactured goods and services produced in a country during a given period; usually one year.

– GDP serves as the principal measure of the size of a country's economy and measures: consumption, gross investment, government purchases of goods and services, and net exports.

– This is compiled by the U. S. Commerce Department.

Measuring Economic ActivityMeasuring Economic ActivityInflation.

– The rapid rise in prices caused by an inadequate supply of goods and services.

– Total demand exceeds total supply.– Dollars are plentiful, so their value declines and

prices increase– The result is a decline in purchasing power; A

dollar does not buy as much as it did before inflation.

– Retirees and individuals on a fixed income are financially hurt the most because their income buys less.

Measuring Economic ActivityMeasuring Economic Activity

Deflation: – A decrease in the volume, or amount, of

currency so that there is less currency available for goods and services within a free market; this tends to force market prices lower.

– Deflation occurs when too few dollars are chasing too many goods. Scarce dollars are worth more, so prices go down.

Measuring Economic ActivityMeasuring Economic ActivityConsumer Price Index (CPI).

– A measure of the average change over time in the prices paid by urban consumers for a market basket of 400 consumer goods and services:

Food and beverage.Housing.Apparel.Transportation.Medical Care.Education.

Measuring Economic ActivityMeasuring Economic Activity

Productivity.– The efficiency with which goods and

services are produced, as measured by the quantity produced per human or machine hour.

– Businesses look for productive employees to increase the profitability of their business.

Measuring Economic ActivityMeasuring Economic Activity

Unemployment.– Joblessness.– The measure of unemployment is the

number of jobless people who are available for work and are actively seeking jobs. The unemployment rate is unemployment as a percentage of the labor force.

Stages of the Business CycleStages of the Business Cycle

Prosperity.– The condition of being successful or

thriving; Especially : economic well-being.

– Prosperity is the peak of the business cycle and is characterized by:

Rise in the gross domestic product.Expansion of business and their profits.Expansion of employment.Low inflation.

Stages of the Business CycleStages of the Business Cycle Recession.

– An extended decline in general business activity, typically three consecutive quarters of falling real gross domestic product.

– Recession is characterized by: Demand for goods and services is less than

supply. Decreased production and increased

unemployment.

Stages of the Business Cycle Stages of the Business Cycle

Depression.– A PROLONGED period of low general

economic activity marked especially by rising levels of unemployment, declines in the sale of goods and services, and business failures.

– This is the lowest point in the business cycle.– The United States experienced a depression

from 1929 – 1939.

Stages of the Business CycleStages of the Business CycleRecovery.

– The act, process, or an instance of recovering ; especially : an economic upturn (as after a depression).

– A recovery is characterized by:Demand for goods and services

increases.Companies hire more employees;

Unemployment decreases.Business profits increase with

increased production.

Stages of the Business CycleStages of the Business Cycle

These stages are the movement of an economy from one condition to another.

Each nation experiences these stages and works to keep their economies as consistent as possible.

ConclusionConclusion

How does supply and demand determine the price of products?

What can you tell about a nation by looking at their Gross Domestic Product?

Why is inflation a bad thing for economies?

In what economic cycle is the United States currently?

Vocabulary ReviewVocabulary Review

Supply Demand Gross Domestic

Product Inflation Deflation Consumer Price

Index

Productivity Unemployment The Business Cycle Prosperity Recession Depression Recovery