Intro to Business Chapter 3: Economic Activity in a Changing World

Recession

- As You Read: *When an economy enjoys prosperity, there is a greater demand for goods. What new technologies were developed in the last few decades as a result of good economic conditions? **Transportation has improved a lot and has helped many businesses to grow since people can get there easily. **Computers also improved a lot and help many businesses keep track of stocks.

Rate of Inflation

- Deflation - a general decrease in the price of goods and services *When an economy produces more goods than people want, sellers have to lower prices and cut production *People have less money to buy goods, so the demand continues to go down

Recovery

- During ________: businesses innovate - Innovation- businesses bring out new goods and services *Can be different from what was previously produced *Can be different from what their competitors produce - Popular innovations will: *Increase sales *Decrease per unit costs *Increase profitability - Innovation= growth in business and rises economic activity

Guiding the Economy

- Economy is shaped by a mix of public and private forces - Individuals play a HUGE part in the market for goods and services - Congress and the President create laws that impact fiscal policy - Economy is affected whenever tax money is spent *They are often planned to help the economy - Federal Reserve- government agency that guides the economy *Regulates amount of money in circulation *Control interest rates *Control the amount of money loaned out - State and local governments also influence their economies

Real World

- In recent years, Japan has found that it does not have enough workers. Corporations have had to react by retaining their skilled laborers. Toyota Motor Corporation in preparing for a shrinking workforce by offering one-year contracts to top employees who turn 60. Japan's largest untapped source is its women. What steps do you think Japan might take to ease its current labor shortage? *First they might have to open these jobs for women and then they might have to train these women to be up to the standards of the business *This would make more workers available to ease the current labor shortage they are experiencing.

Rate of Inflation

- Inflation - a general increase in the price of goods and services *Ones buying power decreases because it costs more to buy goods and services *Increases in the costs or raw materials, expenses, and salaries *Government allows too much in the economy

Unemployment Rate

- Measures the number of people who are able and willing to work but cannot find work during a given period - Changes in the rate show whether the economy is going up or down

Four Stages of the Business Cycle

- Prosperity - Recession - Depression - Recovery

Recovery

- Rise in business activity after a recession/ depression *More work = more money to spend *Increase in demand for goods/ services = more production *Leads into new/ more businesses being opened/ increase in productivity - ________ time= long or short *Beginning of war: US slowly began recovering from WWII depression *During war: US recovered faster **War production

The Changing U.S. Economy

- Sometimes major shifts in certain areas can change the U.S. economy *Early 1600s - colonists traded goods and services **Created the service based economy *1700s - farming was the common way of life **Formed an agricultural-based way of life *Mid-1850s - Industrial Revolution began **Large machines produced goods *1900s - rapid movement of information **Example: Invention of the computer *Today we live in an information age **Still rely on other aspects of different types of economies **Agriculture, industrial, and information all contribute to the health of the US economy

Four Stages of the Business Cycle

- The business cycle is the rise and fall of economic activity over time. - The four stages of the Business Cycle are prosperity, recession, depression, and recovery. - These show when businesses have their ups and downs. - It can happen due to wars, foreign competition, changes in technology, and changes in consumer wants.

Standard of Living

- The level of material comfort as measured by the goods and services that are available *The more goods produced per person, the higher the ________ __ ______ *The US has a high ________ __ ______ due to its productive workforce *________ __ ______ refers to the amount of goods and services people can buy with the money they have *In the free-enterprise system, wealth created by businesses benefits the entire community **They pay taxes and provide jobs

National Debt

- The main source of income for the government is taxes *Tax money is used to pay for defense, social security, and education - Budget Deficit- is when the government spends more on a program than it collects in taxes *Government has to borrow money from banks, other country, and the public - ________ ____: the total amount of money that the government owes *If the debt gets too large a nation can become dependant on other nations or unable to borrow others money - Budget Surplus- When the government's revenue exceeds its expenditures over a one year period - The government often uses the surplus to cut taxes, reduce national debt, or increase spending for other programs

Gross Domestic Product

- The total value of the goods and services produced in the country in a given year *One of the most important indicators of the status of an economy *How they calculate: economists compute the sum of goods and services sold to businesses, customers, the government, and other countries *We have a very high GDP compared to other countries

Measuring Economic Activity

- Ways of _________ ________ ________: *By using figures known as economic indicators **These measure things like how much a country is producing, whether its economy is growing, and how it compares to other countries *Two different indicators: **Gross domestic indicators: the total value of the goods and services produced in a country in a given year **Standard of Living: the level go material comfort as measured by the goods and services that are available

Recession

- _________ is economic activity that slows down. - Unemployment rate increases, people have less money to spend. - There are downturns in many industries in a recession. - Example: A recession in the auto-making industry can lead to a recession in businesses that make parts for cars. *This is called a ripple effect when this happens.

Depression

- __________ is a deep recession that affects the entire economy and lasts for several years - High unemployment and low production of goods and services - It can spread to different countries - ___________ are rare - Example: October 29, 1929 - Black Tuesday - start of The Great Depression *GDP (gross domestic product - total value of goods and services provided in a country in 1 year) declined by 50% *Many banks in the US closed for several days and never reopened

Prosperity

- __________ is a peak of economic activity. - When wages are higher, the workers have more income. - There is a greater demand for goods to be produced. - Say people have more money because higher wages therefore they are buying more things which leads to more workers working.