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Understands the factors that lead to economic transformation

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by

Ryan Crane

on 25 July 2016

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Transcript of Understands the factors that lead to economic transformation

Level 2 Learning Target:
Knows the terms: Economic Transformation, Gross Domestic Product (GDP), Real GDP

Can label the characteristics of the business cycle

Level 3 Learning Target:
Understands the factors that lead to economic transformation

What is the Economy?
The term
Economy
describes the structure of economic activity in a region, country or the world. You could talk about the Lincoln economy, the Maine economy, the New England economy, the US economy or the global economy.
How can we tell how well, or poor, the economy is doing?
An economy's size can be measured in different ways, but the most commonly used measurement is the
gross domestic product (GDP)
.


Economic Fluctuations: The Business Cycle
As you can see from this graph, the US economy can go through some drastic changes in GDP. These changes are part of the
Business Cycle
.
Summary
Gross domestic product (GDP) measures the dollar value of all final goods and services produced in a country in a year. GDP can be used to track and economy's performance over time, or compare different economies.

GDP is calculated by adding up consumer spending, business spending (investments), government spending and all exports minus imports.

Over time, the level of economic activity fluctuates in a fairly regular way. These fluctuations are called the business cycle.

Business cycles involve periods of expansions and contractions. Expansions are periods
of time in which production grows. Recessions occur when real GDP declines for at least
6 months. Because different regions produce different types of goods and services, recessions have an uneven impact on the nation.
Local
State
National
GDP

measures the yearly dollar value of:

1) how much individuals purchased

2) how much businesses produced

3) how much government produced in a given year.

4) It includes production done by foreign companies that operate in the US, but excludes the production by US companies in other countries.

In this graph, GDP
is measured on
the Y-Axis. The larger
the
GDP
, the larger
and more productive
the economy.
Peak
Trough
Expansion
Contraction
Recovery
Prosperity

Sudden declines in the economy are called
Busts

Periods of prolonged economic growth are called
Booms
The
business cycle
reflects the rise and fall of economic activity over time. It has a number of characteristics, which you will see next.
Peak
: Highest point in
the business cycle
Expansion
: A period of
economic growth
Recovery
: A period of
economic growth up to
the previous peak
ECONOMIC BOOMS
Prosperity
: A period of
economic growth above and
beyond the previous peak
ECONOMIC BUSTS
Trough
: Lowest point in
the business cycle
Contraction
: A period of
economic decline
Recession
: A short period of
economic decline, about 6
months
Depression
: Prolonged period of
economic decline
Economic Transformation
Economic transformations
occur when the structure of the economy significantly changes.

What factors might have contributed to the transformations in the 1930s and 1940s?
History of U.S. Business Cycles
Economists have been able to track the U.S. economy back to 1854. Since then, the nation has experienced 31 business cycles. No two have been exactly alike. The longest expansion began in 1991 and lasted until 2001. The longest contraction lasted five and half years from 1873 to 1879.


Different Impact on States
The impact of the business cycle varies from region to region. A recession hits hardest those regions that produce durable goods, such as appliances, furniture and automobiles. This is because the demand for these goods falls more during hard times.


BOOM
BUST
GDP does not measure
Household production
Do-it-yourself work like childcare, making meals, cleaning the house and home repairs are not included in GDP. When households are more self-sufficient the national GDP decreases.
Underground Economy
The underground economy, called the "black market" includes any work that goes unreported either because it's illegal or because those involved want to evade taxes.
Real GDP
Because the value of the dollar changes over time, it is necessary when graphing GDP to convert all years to a base year. In this case the base year is 2005
More on Real GDP
So,
Real GDP
is GDP
adjusted to reflect changes in prices
from year to year.
More on the
Business Cycle
Full transcript