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Economic Performance

Economic Performance. Chapter 4. Sec. 1 Business Cycles. Economic Ups and Downs. OBJECTIVES. Describe the phases of the business cycle. Analyze the effects of economic conditions on consumers. Discuss factors that affect the state of the economy.

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Economic Performance

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  1. Economic Performance Chapter 4 Sec. 1 Business Cycles

  2. Economic Ups and Downs OBJECTIVES • Describe the phases of the business cycle. • Analyze the effects of economic conditions on consumers. • Discuss factors that affect the state of the economy. • Explain measurements used to gauge the state of the economy. http://www.youtube.com/watch?v=jGP-vPEHRRE

  3. What is Gross Domestic Product? A measure of the value of all the FINAL goods and services NEWLY produced within a country’s borders during a period of time (usually a year).

  4. Newly produced goods AND services

  5. Within the country’s borders A VW would be included in GDP, IF it was produced in a plant in Ohio A Ford made in Germany would not be included.

  6. What is NOT included?Secondhand salesUnreported or illegal activity Non-market transactions and

  7. Intermediate goods: a good that goes under further processing before it is sold. The value of the tires, the seat, aluminum, etc on these new bikes are not counted individually as part of GDP. Only the final good, the bike, is counted. No Double Counting

  8. Three Ways to Measure GDP • Spending Approach total amount people spend on goods and services made in America • Income Approach • measures total income that is earned • by all of the workers and businesses in U.S. • Production Approach • adds up the production of each firm • and industry in the U.S. economy

  9. http://www.youtube.com/watch?v=sHoaQ-oNJmo

  10. Determine if each of the items listed below should be included in GDP and under which component or components: Consumption, Investment, Government, Exports or Imports. Next • A stereo produced and sold in the US by a Japanese company • College tuition • A space shuttle launch • The purchase of a plane ticket to London on British Airways • The purchase of a US Treasury Bond by an individual • A new factory built in Illinois by an American company. • The sale of a previously occupied house • A bottle of French wine, sold in the US • A television produced, but not sold. • A home cooked meal • A dinner at a restaurant • A computer produced in the US and sold in Canada • A new interstate

  11. The Business Cycle • Contraction • Business activity slows down. If it lasts long enough and is deep enough, the economy goes into a recession. • Trough • At the lowest point in the cycle, business actually levels off. • Expansion • The economy begins to recover. People spend more money, open more businesses, demand increases production, employment rises. • Peak * A period of prosperity marks the highest point of the cycle. Eventually, however, a contraction occurs and the cycle starts over again.

  12. Economic Extremes

  13. a. contraction b. peak c. depression d. trough e. expansion 1 5 2 3 4

  14. What is Gross Domestic Product? A measure of the value of all the FINAL goods and services NEWLY produced within a country’s borders during a period of time (usually a year).

  15. Factors Affecting Ups and Downs • Consumer Confidence: • Technological Innovation: • Government Policies: • War:

  16. Measuring the Economy’s Performance • Economic Indicators: • Gross Domestic Product • Unemployment Rate • Consumer Price Index

  17. Economic Ups and Downs REVIEW QUESTIONS • What are the phases of a business cycle? • How are consumers affected by inflation? • How might technological innovation affect the economy?

  18. Deficits and Debt OBJECTIVES • Distinguish between a budget surplus and a budget deficit. • Identify reasons for deficit spending by governments. • Analyze the effects of the national debt on consumers.

  19. The Budget Process • Government’s Income and Spending • Budget • Fiscal Year • Budget Surplus

  20. Deficit Spending • Deficit Spending • Budget Deficit • Causes

  21. The National Debt • Borrowing Money • Savings Bond • National Debt • What’s the Impact?

  22. Deficits and Debt REVIEW QUESTIONS • How does the government determine whether there is a budget deficit or a budget surplus? • Identify two reasons the federal government might engage in deficit spending? • How does the national debt affect consumers?

  23. Stabilizing the Economy OBJECTIVES • Compare and contrast fiscal and monetary policy. • Explain the role of the Federal Reserve System (The Fed). • Analyze how the Fed’s actions affect consumers.

  24. Fiscal Policy • Fiscal Policy • Taxing Policies • Spending Policies

  25. Monetary Policy • Money Supply • Monetary Policy • The Federal Reserve System • Federal Reserve Board • Open Market Operations • Federal funds rate

  26. Monetary Policy • The Discount Rate • Reserve Requirement • Effects on Consumers A. B. C. D.

  27. Stabilizing the Economy REVIEW QUESTIONS • What is fiscal policy? Give an example of how it’s used. • What group carries out monetary policy? • Name four ways in which monetary policy actions affect the lives of individual consumers.

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