lesson 4

1. lesson 4 Economic Measurements Taking a look at GDP 04/09

2. PowerPoint Expectations • There will be a quiz covering the notes you take today. • Notes can be taken on paper or on a word document • Title Notes “Economic Measurements” • Surfing of the internet is not permissible while I am showing PPT • Involvement is recommended as it will further impact your learning!

3. Focus on Real Life • “Suppose you hear in the nightly news that the United States economy is experiencing growth. What do you think this means?” • Inflation: • What do you think causes prices to go up? • What causes inflation? teens – lesson 1 - slide 1-A

4. GDP (Gross Domestic Product) • Gross Domestic Product: • The total dollar value of all final goods and services produced in our country during one year. Indicator of how the economy is performing. • GDP includes 3 major categories of expenditures: • What consumers spend for food, clothing and housing: • What businesses spend for buildings equipment and supplies: • What government agencies spend to pay employees and to buy supplies teens – lesson 1 - slide 1-B

5. GDP per capita • Output per person • GDP per capita is calculated by dividing GDP by the total population

6. 4 Phases of the Businesses Cycle: High Employment, Increasing Wages, expanding businesses Rising Unemployment, unsold goods, fallings prices Steep fall in GDP, consistently high unemployment Consumer demand increases and prices are rise again Recession Depression Recovery Prosperity Phases of the business cycle (Matching Exercise) teens – sesson 1 - slide 1-C

7. The Business Cycle • Prosperity—Phase of the business cycle when most people who want to work

8. Common consumer spending • Food • Clothing • Shelter • Transportation • Recreation • Personal Care • Furniture • Medical Care • Savings • During a period of inflation, on which items would they probably spend more? • On which items would you spend less?

9. consumer prices changes in the buying power of the dollar, inflation consumer spending demand for goods and services gross domestic product (GDP) total value of goods and services produced within the country housing starts the number of new homes being built interest rates the cost of borrowing money money supply funds available for spending in the economy stock market index (such as the Dow Jones averages, Standard & Poor’s 500) indicate general trends in the value of U.S. stocks unemployment the number of people without employment who are willing to work economic influences on decision-making These economic factors may influence personal and financial decisions: teens – lesson 1 - slide 1-D

10. personal risks factors that may create a less than desirable situation. Personal risk may be in the form of inconvenience, embarrassment, safety, or health concerns. inflation risk rising prices cause lower buying power. Buying an item later may mean a higher price. interest-rate risk changing interest rates affect your costs (when borrowing) and your benefits (when saving or investing). income risk changing jobs or reduced spending by consumers can result in a lower income or loss of one’s employment. Career changes or job loss can result in a lower income and reduced buying power. liquidity risk certain types of savings (certificates of deposit) and investments (real estate) may be difficult to convert to cash quickly. risks associated with decision-making Risks are associated with every decision. The following are common risks related to personal and financial decision-making: teens – lesson 1 - slide 1-E

11. opportunity costs and the time value of money opportunity cost refers to what a person gives up when a decision is made. This cost, also called a trade-off, may involve one or more of your resources (time, money, and effort). personal opportunity costs may involve time, health, or energy. For example, time spent on studying usually means lost time for leisure or working. However, this trade-off may be appropriate since your learning and grades will likely improve. financial opportunity costs involve monetary values of decisions made. For example, the purchase of an item with money from your savings means you will no longer obtain interest on those funds. time value of money can be used to measure financial opportunity costs using interest calculations. For example: spending $1,000 from a savings account paying 4 percent a year means an opportunity cost of $40 in lost interest. Calculation: $1,000 x .04 (4 percent) x 1 year = $40 Over 10 years, that $40 a year (saved at 4 percent) would have a value of over $480 when taking into account compound interest. teens – lesson 1 - slide 1-F

12. Wants and Needs • Needs • things that are necessary for survival • Examples? • Wants • things not necessary for survival but which add comfort and pleasure to our lives • Examples? • Do wants ever end?

13. Goods and Services/Economic Resources • Goods • things you can see and touch • Examples of Goods? • Services • Not all wants can be met with things you can see and touch Goods and Services are produced by means known as Economic Resources or Factors of Production • Three types of Economic Resources: • Natural Resources • Raw materials supplied by nature • Human Resources • People who work to produce goods and services • Capital Resources • The tools, equipment, and buildings that are used to produce goods and services.

14. Limited Resources/Scarcity • Have you ever experienced wanting many things without having the money to pay for them? • Since our natural and human resources are limited, we are limited in what we can build and produce…just like you are limited in what you can purchase. • Basic economic problem/scarcity • the conflict between unlimited wants and limited resources • Economic Choices • Since you cannot have everything you want, you must choose which things you want the most and can afford.

15. Review • What is the difference between wants and needs? • What is the difference between goods and services? • What are economic resources used in the production of goods and services? • Why does scarcity force individuals, businesses and governments to make choices?

16. Decision Making Metro city is a large growing community. One of its problems has to do with land use. There is a big piece of land that borders a lake on the southeast side of the city. The land has been vacant for several years. Young people of the community occasionally use the area for unauthorized picnics and swimming. The owners of the land have defaulted on their taxes. The city now has to decide what to do with the land. A group of citizens, who call themselves “Citizens for Better Living” want the city to develop the land as recreational area complete with swimming and picnic areas. A local business group wants to buy the land for a luxury hotel and conference center—something the city does not have. To develop the land for recreational purposes will cost $250,000. Funds also will be required to staff the area and to police and maintain it. The sale of the land for a hotel and conference center will provide $110,000 in revenue for the cit. When the hotel and conference center are operational, there will be a tax money coming into the city. But the community badly needs a recreational area, and the local citizens already pay high taxes for city services. The city manager has been asked to resolve this issue. • What are the advantages and disadvantages of the choices facing the city manager? • If you were the city manager, which choice would you favor? Why?