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Understanding the economy

Chapter 3.2. Understanding the economy. Economic Indicators. 3 Goals of a successful economy. Increase productivity Decrease unemployment Maintain stable prices. Key Economic Measurements. Labor Productivity

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Understanding the economy

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  1. Chapter 3.2 Understanding the economy

  2. Economic Indicators

  3. 3 Goals of a successful economy • Increase productivity • Decrease unemployment • Maintain stable prices Sports, Entertainment and Recreation Marketing

  4. Key Economic Measurements Labor Productivity • How much a worker gets done per hour over a given amount of time (a day, month, year, etc.) • How can a business increase their productivity? • Invest in new equipment/technology • Provide additional training for employees • Provide incentives to employees Higher productivity improves company profits

  5. Specialization and Division of LaborPart of Labor Productivity • Ex: An assembly line • Part of the finished product is completed by a person who specializes in that step of the production • The theory is that workers are more productive because they are specialists in that one stage

  6. Key Economic Measurements Gross Domestic Product • Measures the entire nation’s production output • It is made up of • Private investment • Government spending • Personal spending • Net exports of goods and services • Change in business inventories

  7. Key Economic Measurements Gross National Product (GNP) • The total dollar value of goods and services produced by a nation • It is not where production takes place, but who is responsible for it • Was the primary measurement of productivity before GDP (1991)

  8. The Business Cycle

  9. What is it? The cycle of economic growth and decline of a given economy There are FOUR stages: Expansion Recession Depression Recovery

  10. Expansion Flourishing Economy • Consumers have a hopeful outlook about business and the economy • Good time to start a business • Period of prosperity • Low unemployment • Increase in output of goods and services • Higher consumer spending Expansion continues until it reaches a peak This peak signifies the end of the expansion and the beginning of a recession

  11. Recession Economic Slowdown • Lasts at least 6 months • Significant decline in economic activity • Companies reduce workforce • Consumers have less money to spend Recession ends once an economy reaches its trough (lowest point) and then begins to rise

  12. Depression Prolonged Recession • Becomes nearly impossible to find a job • Many businesses are forced to shut down • Consumer spending is very low • Unemployment is very high • Production of goods and services is down • Many people cannot afford to meet their basic needs

  13. Recovery Renewed Economic Growth • This is where the cycle begins again • Business picks up • People start to find jobs • Demand for goods and services increases

  14. The Business Cycle Peak Expansion Recession Recovery Depression Trough

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