The Economy and Marketing
 Economics Standard 9 – Explain how the following economic indicators are used in a market economy for
business analysis and marketing decisions: GDP, standard of living, inflation rates, interest rates, unemployment
rate, productivity rates, stock market reports, and CPI.
 All nations analyze their economies to keep track of how well they are meeting these goals
Goals of a Healthy Economy
 Nations routinely use economic measurements to analyze their economic strength
Economic
Measurements
The Economy and Marketing
 Labor Productivity
 Businesses can ____________________ productivity by:
 Investing in new equipment/facilities to increase ______________________
 Provide additional ____________________ to employees
 Reduce workforce and increase number of responsibilities of the workers who remain
 High productivity improves a company’s profit
 Specialization & division of labor are key to increasing productivity
 __________________________________ are an example of specialization & division of labor
 Each part of a finished product is completed by a __________________ person who specializes
in ____________ aspect of manufacturing
 Work can be completed ________________ and more efficiently, it also makes it easier to identify
_______________________ with products
 Gross Domestic Product (GDP)
 The principal way of measuring a nation’s production output in a given _______________
 Made up of private investment, ____________________ spending, personal spending, net ______________ of
goods & services, and change in business inventories
 Private investment – spending by businesses for ____________________ & software, also home
construction
 Government spending – money spent by federal, state, and local gov’ts
 Social services & ________________________ projects
 _______________________ inventories show that businesses are producing goods/services that are being
stored in warehouses – this adds to GDP
 _______________________ inventories means people are purchasing more goods/services than what
was produced – this is subtracted from GDP
 GDP = C + I + G + (X – M)
 C = Personal Consumption: all spending by ______________________
 _____ = Gross Investment: money spent on all purchases of machinery by businesses, construction of
capital, & ______________ in inventories
 G = Government spending
 X = ______________
 M = ______________
 GDP vs GNP
 In 1991, the US started using GDP as its primary measurement of productivity
 Before 1991, it used GNP (______________________________________________________________)
 Total dollar value of goods & services produced by a nation including goods and services produced
______________________ by US citizens and companies
 When comparing GDP and GNP, ________________________ of ________________________ is important
 EX: FORD is a US corporation and has a plant in England
 The portion of production that takes place in England is counted in the ______ GNP but NOT in the GDP
 The portion of production that takes place in England is counted in ______________ GDP but not the
GNP
The Economy and Marketing
 Standard of Living
 Measurement of a country’s amount and quality of goods and services that a nation’s people have
 Reflects a ___________________________________
 Standard of living = GDP / population OR GNP / population
 This gives you an amount of GDP or GNP per person (per capita)
 Most ________________________ nations have a higher standard of living because they have a high level of
___________________
 Some countries provide more social services for their citizens
 Free education and health care provided by the government
 The number of households per 1,000 inhabitants with durable goods (washing machines, refrigerators,
dishwashers, vehicles) can be included in the analysis
 High levels of social services & _____________________________ means a country has a high standard of living
 Inflation Rate
 Inflation refers to a ____________ in ______________ of goods and services
 A low inflation rate (___________ each year) is good because it shows that the economy is stable
 Double Digit inflation (10% or higher) hurts an economy
 When inflation is this high, money ______________ its ____________
 People who live on a __________ income (ex: Social Security) are hurt by high inflation
 Controlling inflation is one of the governments major goals
 When inflation rises, the gov’t increases interest rates to __________________ borrowing money
 The result is slower economic growth, which helps bring inflation down
 Two measures of inflation in the US
 ___________________________________ (CPI) aka Cost of Living Index
 Producer Price Index (PPI)
 CPI measures the _____________ in price over a period of time
 Examines the price of 400 specific retail goods & services used by the average household (referred to as
a basket of goods) and how the price of this basket has changed
 Food, housing, utilities, transportation, and medical care are a few components
 PPI measures wholesale price levels in the economy
 Producer prices generally get passed along to the consumer
 When there is a drop in the _________, it is generally followed by a drop in the __________
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Unemployment Rate
All nations chart the unemployment rate (jobless rate)
The higher the unemployment rate, the greater the chances are of _________ economic times
The ________________ the unemployment rate, the greater the chances are of an economic expansion
 When more people _____________, there are more people spending money and paying taxes
 3 types of unemployment:
 _________________________
 Workers are searching for jobs or waiting to take jobs
 _________________________
 Any worker who becomes unemployed due to a lack of skill with a new technology introduced
by his or her employer
The Economy and Marketing
 _________________________
 Results from the normal fluctuations of the business cycle – caused by a decline in total
spending in the economy
 An unemployed person is anyone who is willing and able to work but does not have a job
 Not included in the unemployment rate is anyone under the age of _____ and or discouraged workers
(those not __________________ employment)
 Part-time workers are considered _______________________!
 4-5% of the labor force can be unemployed and we can still be considered at _____________________________
 Business Cycle
1. _____________________: this phase denotes growth in the economy, employment and price level is
growing
2. _____________________: this is the height of the expansion phase; usually not known until it is over;
unemployment reaches its lowest point in the cycle and businesses reach their expansion limits
3. _____________________: this is the downside of the expansion phase; unemployment begins to grow while
business are downsizing and making cuts; two consecutive quarters of this phase denotes a recession
4. _____________________: this is the “bottoming out” of the contraction phase; this phase is usually not
known until it is over; unemployment and firm contraction reach their lowest points
 Factors that Affect Business Cycles
 Business cycles are affected by the actions of businesses, consumers, and the government
 In turn, all three of these groups are affected by the business cycle
 Businesses:
 Expansion/Recovery:
 __________________ their operations
 Invest in new properties, equipment, inventories & hire more ___________________
 Recession/Depression:
 Cut back operations
 ______________________ employees
 Cut back inventories to match lowered __________________
The Economy and Marketing
 Consumers:
 Recession:
 Biggest fears are _______________________ and decreased wages
 This _____________________ consumer spending
 Reduced consumer spending causes businesses to reduce their operations in response
to lower demand
 Prosperity & Recovery:
 Consumers are optimistic
 Spend more money on material goods & ________________ items
 Businesses respond by producing more goods
**Consumer spending accounts for more than _____________________ of the US GDP
 Government:
 Policies & programs
 _______________ has a strong effect
 When the government requires more money to run programs, ______________ taxes
are needed
 When taxes are raised, businesses & consumers have ____________________________
to fuel the economy
 When the economy needs a boost, the gov’t may ___________ taxes or lower interest rates
 This gives businesses & consumers more money to spend and invest
 In 2008, the government issued ____________________________ to taxpayers to encourage
consumer spending