Chapter 3
Economic Activity in a Changing World
3.1: US Economic History
Major Purpose of an
Economic System?
• To produce the goods and
services wanted by people
Gross Domestic Product
• The final output of an economy = goods &
services
 Over specific period of time
 Determines how well an economy is
performing
How to calculate GDP?
• Consumer goods and services
(Spending)
• Business goods and services
(Production)
• Government goods and services
(Spending from our taxes)
• Goods and services sold to other countries
(Excess of exports over imports)
United States GDP
According to Trading Economics, the GDP value of the United
States represents 25.30 percent of the world economy.
Standard of Living
• Level of material comfort as measured by
the goods and services that are available.
Unemployment Rate
• Measures the number of people who are able to work but
do not have a job during a given period of time.
• Possible reasons for unemployment:
 Quit your job
 Just graduated from college
 Laid off from work, corporate downsizing
• 1999 --> 4.4% 2012--> 8.1%
20137.3%
Rate of Inflation
• Inflation - increase in cost
 An economy is too productive
 Demand rises and cost rises
 Hyperinflation
• Deflation - decrease in cost
 Demand decreases and cost decreases
• Could cause and economic collapse
National Debt
• The main source of income for a government is taxes.
 Defense, Education, Social security
• Budget Deficit
 Spending more than collecting
 Borrows primarily from banks and other countries
• National Debt
 Total amount government owes
 http://www.usdebtclock.org/
3.2: The Business Cycle
The Business Cycle
• Represents the rise and fall of economic
activity over time
Prosperity
• Peak of economic activity
• 1990s
• Any variable can change things
 Companies produce too much, people stop
buying, or inflation starts to rise
Recession
• Slowness of economic activity
• One industry, related industries, or spread to
the entire economy
• Ripple effect
Depression
• Deep recession
• Lasting years
• Limited to one country but usually spreads to
others
• October 29, 1929
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



Black Tuesday
GDP fell 50% in 4 years
Unemployment rose 800%
Banks failed
Towns and counties printed their own money
Recovery
• Rise in activity after a recession or depression
• New product innovation and demand for goods
• Profits increase, business grows, economic
activity soars.
3.1: Review Key Concepts
• Textbook page 42
• Record answers in your notes
• #1-4
3.2: Fast Review
• Textbook page 47
• #1-4