S

BMF 2.1

Section 2.1 - Measuring Economic Activity

  • I will be able to describe common indicators used to measure the strength of an economy

  • We will be able to explain the four stages of a business cycle

How does the health of an economy affect businesses?

Economic strength can be measured using economic indicators

  • Gross Domestic Product (GDP)

  • Inflation

  • Interest Rates

  • Unemployment Rate

  • Stock and Bond Markets

Gross Domestic Product (GDP) - market value of all final products produced in a country during a specific time period

  • A.K.A Economic Output

  • Measured in dollars

  • Per capita GDP - GDP of a nation divided by its population

  • To measure GDP, add total amount of money spent on goods and services

    • Consumer spending - everything people buy for personal use

    • Business spending - all purchases made for capital goods and construction

    • Government spending - spending by national, state, and local governments

    • Next Exports - country’s exports minus imports

  • GDP changes over time

    • Economic growth rate - shows the amount and direction of change

Inflation - general rise in prices throughout an economy

Low - 1 to 4 % - stable economy

Medium - 5 to 9% - prices start rising faster than wages

Severe - 10% or higher - purchasing power falls more quickly

Hyperinflation - over 1000% - value of money and the economy is destroyed

Inflation Rate - rate of change in prices calculated on a monthly or yearly basis

Consumer price index (CPI) - measure of average prices paid by consumers for consumer goods and services

Deflation - general decline in prices throughout economy

Interest - amount a borrower pays to a lender for a loan

Interest rate - represents the cost of a loan and is expressed as a percent of the amount borrowed

  • Determined by supply and demand

Labor Force - all the people in a nation who are capable of working and want to work

  • 2 categories: employed, unemployed

Unemployment Rate - the percentage of the civilian labor force that is unemployed

Full Employment - when every person willing and able to work has a job

Productivity - measure of a worker’s production in a specific amount of time, such as an hour, a day, or a week

  • Can lead to a higher standard of living

Specialization - focusing on the production of specific goods so that more products can be produced with the same amount of labor

  • Applies to production of both nations and individuals

Stock Market - a system and marketplace for buying and selling stocks

  • Values in stock markets go up and down

Bond - a certificate of debt issued by an organization or government

  • Can be traded among investors

  • Interest rates change every day

Business Cycle - alternating periods of expansion and contraction in the economy

  • Expansion - economy is growing and GDP is rising (Growth)

  • Peak - end of expansion - highest point in business cycle

  • Recession - significant decline in total output, income, employment, and trade in an economy (Contraction)

    • Depression - period of severe and long-lasting economic contraction

  • Trough - lowest stage of a business cycle - marks end of a recession