Economic Activity in a
An introduction to business.
Q: I am a drummer in a band. I can’t decide if I should
buy a new drum set now, or wait until next year when
we go on the road. Should I buy now, or wait until next
year and hope prices don’t go up?
A: A financial risk is always a factor when making
major purchasing decisions. You have identified one
risk - inflation. Prices may go up, but they also may
come down. If you need a loan to buy the drum set,
changing interest rates represent another risk. You
also have liquidity risk. If the band breaks up, how long
will it take you to sell your drums so you can pay off
your loan? Some risks can be evaluated
mathematically, others cannot.
What’s the main picture?
Main Idea #1
Throughout the years, the U.S. economic
system has changed. Each change affected
what was produced and how people were
employed. To gauge the health of our
economic system, we use a variety of
Main Idea #2
In a market economy, there is an economic
cycle, which includes four stages: prosperity,
recession, depression, recovery. These are
also four stages of the business cycle. In the
last few decades, we have experienced the
economic cycle a number of times.
2) The Four types of economic shifts the United States has experienced are
recovery, prosperity, recession, and depression.
3) GDP shows the gross domestic product. It is the sums of the goods and
services sold to businesses, consumers, the government, and other countries. The
unemployment rate measures the number of people who are unable and willing to
work but cannot find work during a given period. The rate of inflation shows the rate
in which there is a general increase in the prices of goods and services. The
national debt shows the total amount of money a government owes.
4) Individuals and the government greatly influence the economy. If people aren’t
purchasing items, then the economy will suffer along with the businesses. On the
other hand, and economy will flourish if people are by using goods and stimulating
the local businesses.
5) The Four stages of the business cycle are Recovery, prosperity, recession,
6) The cars made in this country by a foreign owned company would be included
in GPD because the cars are being sold in this country
7) Working at a day-care center because it’s a service that has total value for a
year has better opportunities than a scattered job.
And More Questions!
8) People who are unemployed but not looking for work are not included
in the unemployment figures because they’re not looking for a job which in
that case doesn’t entitle them for the unemployment figures.
9) Inflation is especially difficult for retired people because with the
increased prices many retired people may not be able to afford them.
10) Deflation may be a bad thing because if the prices get too low
people’s inventory get smaller.
11) If you go to a store to buy a soda but notice the price is 20 cents
higher than it was last week, but other prices are unchanged, this is not an
example of inflation because it’s only an increase on one item, not on
every item in general.
12) In the depression stage, many businesses are more likely to go
bankrupt. In the recovery and prosperity stages, more businesses are
more likely to get more business.
But, what does this all
1. Gross domestic product- Total value of the goods and services produced in a country in a given
2. Standard of living- level of material comfort as measured by the goods and services that are
3. Inflation- general increase in the price of goods and services.
4. Deflation- general decrease in the price of goods and services.
5. Budget deficit- When the government spends more on programs than it collects in taxes, this is
6. National Debt- The total amount of money a government owes.
7. Budget surplus- governments’ revenue exceeds its expenditures during a one year period.
8. Business cycle- rise and fall of economic activity over time.
9. Prosperity- peak of economic activity.
10. Recession- economic activity slows down.
11. Depression- deep recession
12. Recovery- rise in business activity.
Where did this
U.S. Economic History Throughout the years,our
economic system has evolved and changed. In
colonial times, the United States had begun its
service-based economy. The 1700's saw the rise of
the agriculture-based economy. The Industrial
Revolution in the 1850's brought about the
industrial economy, characterized by the large-
scale manufacturing of goods. During the latter
part of the 20th century, the information
technology economy revolutionized the business
world. to measure the health of our economic
system, we use a variety of economic indicators,
including GDP, unemployment rat, rate of
inflation, and national debt.
The Cycle of....
The Business Cycle In a global economy, one
country's economy can affect the economy of
its other trading partners. The Fed adjusts
monetary policies to try to level out the ups and
downs of the economy. An economic cycle
includes four stages: prosperity, recession,
depression, and recovery. Prosperity is the peak
of economic activity. Recession is a slowdown
in economic activity. Depression is a deep
recession that affects the entire economy and
lasts for several years. A recovery is a rise in
business activity after a recession or
depression. Fortunately, the United States has Just as there
not has a depression since the 1930's.
is a success
U.S. Unemployment vs.
U.S. initial jobless claims fell last week, the Labor Department reported Thursday Sept. 17.
The number of first-time applications for unemployment benefits fell 12,000 to 545,000. Many
economists did not expect a drop and the data is being taken as another possible sign that the
American economy is pulling out of recession. Recent retail sales and manufacturing prices data have
also suggested a U.S. recovery is coming.
What Can We Do About
CNN Money has published reports that the national unemployment rate continues to
climb. Currently the figure stands at 6.7%, and there’s no sign of greener pastures in the
The announced loss of 553,000 jobs in the month of November alone comes along just as
America faces the longest recession since the Great Depression of the 1930s, and
estimates have this particular recession extending far longer with effects far greater than
that of the 1980s. Global Insight has predicted that unemployment will reach 8.6% by the
end of 2009.
Job losses are expected to continue until other foundations of the American economic
system right themselves. The middle-class has taken the hardest hit in the process, as
70% of the job loss has been reported out of the retail, hotel and restaurant industries.
It’s a prime example of how expendable income is tightening and people are focusing on
the necessities rather than frivolous spending. Those that once carried out the roles of big
spenders are now forced to hold their assets, and the companies that used to benefit
from consistent daily spending are consequently forced to bite the bullet, most notably by
cutting back on man power.
Part of the $500 billion stimulus package Barack Obama plans to implement calls for $100
billion to be invested into the redevelopment of roads, bridges, and levees around the
country, a decision that he predicts will generate over 2 million new jobs for the
Unemployment in America
What are some possible explanations for the
drastic increase from 2008 to 2009?
REAL LIFE EXAMPLES!
As of this writing, Go Daddy is a very successful company. We're far and away the leader in the domain
name registration market. It's ironic that it is, because when I started Go Daddy, I didn't do it to make
money. I started Go Daddy to have something to do. Throughout the process of building the company — as
I have always been the only investor — I came creepy close to going broke. But that's another story. Since
1997 when I started Go Daddy, there was only one principle that I used to build the company. It's a simple
one. Do the right thing for the customers and provide them with as good a deal as possible. No smoke and
mirrors — ever. The whole idea back then, and it continues today, is to make a little money from a lot of
people. This differs from many companies who have just the opposite philosophy.
Not long ago, an applicant asked if Go Daddy is an exit strategy for me, or, whether it is a lifestyle. It's
certainly not an exit strategy. I'm asked almost on a weekly basis if I want to sell the company. The prices I
am offered are incredibly generous. I never really consider any of them. For me, the answer to that
applicant's question, is that Go Daddy is a lifestyle. It's what I do, and in many ways it's my hobby.
What does our future
President Obama’s chief economics forecaster said on Sunday that the nation’s unemployment rate was likely to keep rising until 2010, even if the
economy begins growing later this year.
But Ms. Romer also said that she expected unemployment to rise even after the economy turns, saying that gross domestic product has to grow at a rate
of about 2.5 percent before unemployment will fall. Before that happens, she said, it is “unfortunately pretty realistic” that the unemployment rate could
reach 9.5 percent. It was reasonable to estimate that the G.D.P.’s growth rate in 2010 would be 3 percent, she said.
According to figures released on Friday, the unemployment rate in April was 8.9 percent, its highest level in 25 years. The so-called underemployment
rate, which counts people who are working part time because their hours have been cut and those who have given up looking for jobs, reached 15.8
Still, the administration seized on the report as an early sign that the economy’s free fall was coming to a halt, because the pace of deterioration had
“The chance that consumers are ever going to go back to their high-spending ways is not very plausible, nor do I think they should,” she said. “We were a
country that needed to start saving more.”
Ms. Romer also defended the Obama administration’s budget, which has been criticized by Republicans and some independent analysts for not cutting
spending deeply enough. In details released Thursday, the White House budget director, Peter Orszag, announced cuts to 121 programs that would save
$17 billion. The savings total is about one-half of 1 percent of the $3.5 trillion budget. The White House is expected to provide additional information on
its budget on Monday.
Ms. Romer said that the reductions announced Thursday were only one part of the Obama administration’s larger plan to cut the deficit in half by the
end of his first term, a goal that she said was still reasonable. She pointed to the president’s announcement last week of his intent to close tax loopholes
for offshore tax havens as another example. But the “big dollars,” she said, would come from fundamental changes in the health care system.
What are some examples
of inﬂation today?
Higher oil prices have driven the rise in
manufacturers' raw material costs to its
highest rate in more than a year, pushing up
inflation at the factory gate.
The data suggests next week's consumer
price inflation figure could be higher than
many economists are expecting. Inflation in
Britain has been stickier than in many other
countries during the economic downturn.
Producer input prices jumped by 2.2% in
August from the previous month, the
biggest increase since June 2008,
according to the Office for National
Statistics. This was more than twice as big
a jump as expected and comes after a 1.1%
fall in July.
The ONS said the rise mainly reflected
higher crude oil costs.
Examples of Deﬂation
Examples of deflation include the Great Depression and the
economy of Japan during the 1990s. During the 19th
century the gold standard was in use and known gold
stocks were growing less rapidly than production. As a
result, gold became more expensive in terms of goods, that
is, a drop in the price level. This phenomenon ended with
the discovery of gold reserves in South Africa and Alaska.
During World War I the British Pound Sterling was removed
from the gold standard.
The above is the US National Debt Clock. This is a picture of it at 7:53
p.m. on Tuesday, Sept. 22. It is continually growing. The United States
government debt, commonly called the "public debt" or the "national
debt", is the amount of money owed by the Federal government of the
United States to holders of U.S. debt instruments. Gross Debt is the
national debt plus intergovernmental debt obligations or debt held by
trust funds like the Social Security Trust Fund. Types of securities sold
by the government include, but are not limited to, Treasury Bills, Notes,
Bonds, TIPS, United States Savings Bonds, and State and Local
Government Series securities.
A budget deﬁcit occurs when an entity spends more money than it takes in. The opposite
of a budget deﬁcit is a budget surplus. Debt is essentially an accumulated ﬂow of deﬁcits.
In other words, a deﬁcit is a ﬂow, and debt is a stock.
An accumulated governmental deﬁcit over several years (or centuries) is referred to as the
government debt. Government debt is usually ﬁnanced by borrowing, although if a
government's debt is denominated in its own currency it can print new currency to pay debts.
Monetizing debts, however, can cause rapid inﬂation if done on a large scale. Governments
can also sell assets to pay off debt. Most governments ﬁnance their debts by issuing long-
term government bonds or shorter term notes and bills. Many governments use auctions to
sell government bonds.
After the First World War the United States was in a strong economic position. The economies of her European rivals had
been severely disrupted by the war and US companies were able to capture markets which had previously been supplied by
countries like Britain and Germany.
Companies in the United States also began to make full use of what became known as mass production. Between 1919 and
1929 output per worker increased by 43%. This increase in output enabled America to produce items that were cheaper than
those manufactured by her European competitors. Inflation remained low while incomes increased by an average of 35%
during this period.
The United States also pioneered techniques in persuading people to buy the latest products. The development of
commercial radio meant that companies could communicate information about the goods to a mass audience. In order to
encourage people to purchase expensive goods like motor cars, refrigerators and washing machines, the system of hire-
purchase was introduced which allowed customers to pay for these goods by installments.
The American economy appeared to be in such a healthy state that in 1928, Herbert Hoover, the man who was soon to
become President of the United States, was able to claim that: "We in America are nearer to the financial triumph over
poverty than ever before in the history of our land."
The U.S. economy is pulling out of its deepest and longest recession
since the Great Depression. Some economists expect a powerful
recovery, others a sustained but muted one. Some even say it will be
neither: a fleeting rebound quickly followed by a second slump.
Standard of Living
We can compare different standards of living
from across the world. Truth be told, America has
a much higher standard of living than other third
world countries. Our level of material comfort as
measured by the amount of goods and services
available is much higher than those living with