Unit A Business in a Changing World Section 1. 04 Economic Indicators and the Business Cycle
Measuring Economic Activity l 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 Activity l 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 Activity l Gross 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 Activity l Inflation. – 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 Activity l 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 Activity l Consumer 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. l Housing. l Apparel. l Transportation. l Medical Care. l Education. l
Measuring Economic Activity l 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 Activity l 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 Cycle l Prosperity. – The condition of being successful or thriving; Especially : economic wellbeing. – Prosperity is the peak of the business cycle and is characterized by: Rise in the gross domestic product. l Expansion of business and their profits. l Expansion of employment. l Low inflation. l
Stages of the Business Cycle l Recession. An extended decline in general business activity, typically three consecutive quarters of falling real gross domestic product. – Recession is characterized by: – l l Demand for goods and services is less than supply. Decreased production and increased unemployment.
Stages of the Business Cycle l 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 Cycle l Recovery. 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. l Companies hire more employees; Unemployment decreases. l Business profits increase with increased production. l
Stages of the Business Cycle l These stages are the movement of an economy from one condition to another. l Each nation experiences these stages and works to keep their economies as consistent as possible.
Conclusion l How does supply and demand determine the price of products? l What can you tell about a nation by looking at their Gross Domestic Product? l Why is inflation a bad thing for economies? l In what economic cycle is the United States currently?
Vocabulary Review l l l Supply Demand Gross Domestic Product Inflation Deflation Consumer Price Index l l l l Productivity Unemployment The Business Cycle Prosperity Recession Depression Recovery
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