Chapter 3
Economic Activity in a
Changing World
pp. 34-47
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Chapter
3
Why It’s Important
Economic activity affects everyday
life. The history of the economy affects
industries and people of today and
tomorrow.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Key Words
gross domestic product (GDP)
standard of living
inflation
deflation
budget deficit
national debt
budget surplus
business cycle
prosperity
recession
depression
recovery
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Measuring Economic Activity
Economic indicators measure things like
how much a country is producing, whether
its economy is growing, and how it
compares to other countries.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Gross Domestic Product (GDP)
The total value of the goods and services
produced in a country in a given year is
called its gross domestic product (GDP).
Introduction to Business, Economic Activity in a Changing World
3
Graphic
Organizer
Chapter
Graphic
Organizer
Gross
Domestic
Product
Consumer
goods
and
services
+
Business
goods
and
services
Government
+
goods
and
services
+
Introduction to Business, Economic Activity in a Changing World
Goods
and
services
sold to
other
countries
=
Gross
Domestic
Product
Chapter
3
Gross Domestic Product (GDP)
The standard of living is the amount of
goods and services the average citizen can
buy.
Introduction to Business, Economic Activity in a Changing World
Chapter
Figure
3.1
3
GROSS DOMESTIC PRODUCT
The gross domestic
product (GDP) is the
output of goods and
services produced in a
country.
What percentage did
the GDP increase from
the end of Year 2 to the
beginning of Year 3?
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Unemployment Rate
The unemployment rate measures the number of
people who are able to work but don’t have a
job during a given period of time.
Changes in the unemployment rate show
whether an economy is picking up or slowing
down.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Unemployment Rate
There are different reasons for being
unemployed, including:
• Temporary
• Seasonal
• Changes in industry
• Economic slowdown
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Rate of Inflation
Inflation is a general increase in the cost of goods and
services.
As the demand for goods goes up, producers raise their
prices. To pay the higher prices, workers demand
higher wages.
If this cycle continues, it can lead to hyperinflation.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Rate of Inflation
Deflation is a general decrease in the cost
of goods and services.
When an economy produces more goods
than people want, it has to lower prices
and cut production.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Rate of Inflation
The United States tries to maintain a slow
but steady rate of economic growth to
avoid both inflation and deflation.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
National Debt
When the government spends more on
programs than it collects in taxes, the
difference in the amount is called the
budget deficit.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
National Debt
The total amount of money a government
owes is its national debt.
If the debt gets too large, a nation can
become dependent on other nations or
unable to borrow any more money.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
National Debt
If a nation spends less than its income, it
has a budget surplus.
The government will probably use a
surplus to cut taxes, reduce the national
debt, or increase spending for certain
programs.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
The Business Cycle
The rise and fall of economic activity over time
is called the business cycle. The four phases are:
• Prosperity
• Recession
• Depression
• Recovery
Introduction to Business, Economic Activity in a Changing World
Chapter
Figure
3.2
3
BUSINESS CYCLE MODEL
The repeated rise
and fall of economic
activity over time is
called a business
cycle.
What are the four
phases of the cycle?
Introduction to Business, Economic Activity in a Changing World
Chapter
3
The Business Cycle
In a global economy, in which several
countries are trading goods and services
with one another, one country’s economy
can affect its trading partners’ economies.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Recession – more info
There is a general drop in the total
production of goods and services, so the
GDP declines.
A recession can affect only one industry,
related industries, or spread to the entire
economy.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
Depression – an example
The stock market crash on October 29, 1929, or “Black
Tuesday,” marked the beginning of the Great
Depression.
• Between 1929 and 1933, GDP fell from approximately $103
billion to $55 billion.
• The number of people out of work rose nearly 800 percent.
• Many banks failed.
• The money supply fell by one-third.
• The Recovery - During World War II 1941+, the US recovered
from the Great Depression much faster because of the demand
for war production.
Introduction to Business, Economic Activity in a Changing World
Chapter
3
How has the Internet changed the
way people do business?
Introduction to Business, Economic Activity in a Changing World