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The Business Cycle
What is Capitalism?
An economic system where private individuals or
corporations own the means of production and
 The goal of capitalism is to make money.
 Production = supply and demand
 Prices = supply and demand
What is Capitalism?
At the beginning of the 20th century, capitalism was
very different from today.
 Most governments carried out lassiez faire
economic policies.
 This means that the government did not interfere
with the economy.
In the late 1920’s, a shift occurred because
governments had to exercise more control over
economic matters.
Business Cycle (Economic Cycle)
Capitalism is characterized by a series of booms and
busts called the business cycle.
Letter A represents a decline, sometimes called a
recession or bust.
 During a decline, consumer spending decreases
and investors become cautious about the future.
 As a result, factories slow production and lay off
 The increased unemployment leads to reduced
spending, further contributing to the economy’s
Letter B represents the lowest point of a recession.
 This is a period of high unemployment and low
 The prices drop because there is less money being
circulated in the economy.
 The bust, or recession, tends to not last for a long
period of time.
Letter C represents a boom, or prosperity. A boom
is a period of prosperity.
 During this time, most people have jobs, and are able
to buy goods and services.
 This keeps the economy strong.
 During this time, there is the highest levels of
inflation as producers try to slowly increase their
prices in order to get a bigger share of the thriving
Letter D represents a depression.
 A depression is a very big decline whereas a
recession is only a small decline.
 During a depression, unemployment is very high
and there is little money circulating in the
marketplace. This is very serious for a country.
Letter E represents a recovery.
 During a recovery, the economy is improving.
 When people have more money, they start
spending more, and producers are encouraged to
increase production.
 This means there are more jobs, and, in turn, even
more spending.
Business Cycle (Economic Cycle)
Turn to your neighbour and explain what A,B,C,D,E
represent on the Business Cycle chart?
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