CHAPTER
2
SLIDE 1
Economic Activity
2-1
Measuring Economic Activity
2-2
Economic Conditions Change
2-3
Other Measures of Business Activity
MEASURING ECONOMIC ACTIVITY
WHAT IS GDP?
Gross Domestic Product (GDP)- The total value of all final goods
and services produced in a country in one year.
4 Components of GDP
1. Consumer spending for food, clothing, household goods
2. Business spending for buildings, equipment, other goods
3. Government spending for employees, supplies, goods & services
4. The exports of a country (minus the imports)
DISCUSSION QUESTION:
What is an import? What is an export?
COMPARISON OF GDP IN SELECTED
COUNTRIES
SLIDE 3
Checkpoint 
GDP per capita- output per person
What types of economic activities are not included
in GDP?
– GDP only applies to reported final goods and services.
– Money earned for goods or services that are not
reported would not be included.
– Goods and services used in the manufacture of other
products are only counted once—in the final product.
SLIDE 4
Other ways to measure economic activity:
• Unemployment rate- measures in % how many capable
people are out of work.
• Productivity- the output as it relates to input, Examplea worker (input) creating a product (output)
• Personal Income- salaries, wages, and investment
income
• Retail Sales- the monthly calculation by the US Dept. of
Commerce to measure the sales of goods by consumers.
Checkpoint 
• How can productivity be increased?
– Productivity can be increased by improvements
in capital resources (equipment and
technology), worker training, and management
techniques.
SLIDE 6
Checkpoint 
• What are the four phases of the business
cycle?
P
– Prosperity
– Recession
– Depression
– Recovery
SLIDE 7
R
R
D
Business Cycle
– Prosperity- Productivity is high, unemployment is
low. Many jobs are available.
– Recession- Production starts to decline while
unemployment is rising. Jobs are decreasing
– Depression- Production is low for years,
unemployment is high. Economy is stagnant
– Recovery- Production increases, unemployment
decreases. Jobs are being created.
CONSUMER PRICES
• Inflation- The general increase in prices
(historically about 3 % a year).
• Price Index- Consumer Price Index- comparing
prices on products from one year to the next
• Deflation- The general decrease in prices
SLIDE 9
Checkpoint 
• What are the main causes of inflation?
– Inflation is an increase in the general level of
prices that occurs when the demand for goods
and services is greater than supply.
SLIDE 10
Checkpoint 
• How do interest rates affect business activities in
our economy?
– Interest rates can encourage or discourage borrowing
and spending.
– Lower interest rates allow consumers greater spending
power, which increases demand, productivity, and
employment.
– Businesses often pass on the cost of higher interest
rates to consumers.
SLIDE 11
Types of Interest Rates
(look up in chapter 2, page 42 or
online research)
•
•
•
•
•
•
•
Prime Rate
Discount Rate
T-bill
Treasury Bond
Mortgage Rate
Corporate Bond
Certificate of Deposit (CD)
INVESTMENT ACTIVITY
• Capital project- Spending by businesses for land,
buildings, equipment.
Give an example:______________________
• Stock- Ownership in a company, equity
Give an example:______________________
• Bond- Represents debt for an organization, a loan
* How is our football stadium an example of this?
SLIDE 13
DISCUSSION QUESTIONS
GOVERNMENT DEBT
*Use your book or online research to
define the following 3 terms.
HOW DOES OUR GOVERNMENT CREATE A SURPLUS
INSTEAD OF A DEFICIT?
• budget surplus
• budget deficit
• national debt
Use Book (Ch. 2) or Online Research
CHAPTER 2 DISCUSSION QUESTIONS:
• What phase of the business cycle are we in nowexplain your answer
• What phase is unemployment the highest and lowest
in the business cycle?
• Is the US government in a budget surplus or budget
deficit? EXPLAIN
Online Research
• Page 4 B
• Online Research on Current Statistical
Information regarding the US Economy.