Download + PEAK

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Business Cycles & Fluctuations
http://www.investopedia.com/video/play/busi
ness-cycle/
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Business Cycle
Business cycles are alternating periods
of rising and falling real GDP.
 Can interrupt the nation’s economic
growth
 The economy follows the Business Cycle
regularly.
RECESSION
A period during which GDP declines for at
least two quarters in a row [6 months]
Can have widespread effects on production,
income, employment, and sales across the
economy
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PEAK
When an expansion is ending and the economy will proceed to a
contraction, the peak occurs.
A recession begins when the economy reaches a peak: the
point where GDP stops going up.
A peak is
at the
highest
level of
real GDP.
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Peak
 When
the economic cycle peaks:
 The economy stops growing (reached the
top)
 Wages are at their highest
 GDP reaches maximum
 Businesses can’t produce any more or hire
more people
 Business maximize profits
 Unemployment is at its lowest
 Cycle begins to contract
+ TROUGH [“Trawf”]
 The
end of a recession. The point where GDP stops rising and
begins to decline.
When a contraction ends and the economy will proceed to an
expansionary phase, the trough occurs.
A trough is
at the
lowest
level of
real GDP.
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Trough
 When
the economic cycle reaches a trough:
 Economy “bottoms-out” (reaches lowest point)
 Wages are at their lowest
 Borrowing is at its lowest
 High unemployment and low spending
 Stock prices drop
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EXPANSION
A
period of recovery from recession.
 Continues
until the economy reaches a new peak.
An expansion is a phase of the business cycle during
which real GDP rises
.
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Expansion
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During a period of expansion:
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Wages increase
Low unemployment
People are optimistic and spend more money
High demand for goods
New businesses start
Easy to get a bank loan
Businesses make profits and stock prices increase
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Contraction
A contraction is a phase of the business cycle during which real GDP falls.
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Contraction

During a period of contraction:

Businesses cut back production and layoff people

Wages decrease

Unemployment increases

Number of jobs decline

People are pessimistic (negative) and stop spending money

Banks stop lending money
Depression
If a recession is very severe, it could lead to
a depression:
A state of the economy with:
•Large numbers of people out of work
•Major shortages and
•Low production [excess capacity in
manufacturing plants]
UNEMPLOYMENT
Civilian Labor Force
The sum of all people 16 years and older
who are either employed or actively seeking
employment.
Excluded: military, imprisoned,
institutionalized.
Unemployed
People available for and looking for work
during the last 4 weeks.
The number of people who are not
working but are actively seeking work
Unemployment rate
The number of unemployed divided by the
total number of people in the civilian labor
force.
Number of unemployed =unemployment rate
Civilian labor force
15,100,000
154, 082,000
= 9.8% unemployment rate
U.S. on average= 6 %
Underemployment
Discouraged workers: people who give up and
stop looking for work. [not included in the
unemployment rate]
Underemployed workers who would like to
work more hours or prefer a job that better
matches their skills.
Frictional Unemployment
Workers changing jobs or waiting to go to a new
job
Short-term unemployment that occurs while
workers search for the jobs best suited for their
skills and interests.
Structural Unemployment
Fundamental changes in the economy that
reduces the demand for some workers.
Arises from a mismatch of skills between
job seekers and the types of jobs available.
Technological Unemployment
Occurs when workers are replaced by
machines or automated systems that make
their skills obsolete.
ATMS/Bank Tellers
Cyclical Unemployment
Relates to a change in the business cycle.
Joblessness caused by economic contraction.
During contraction, production [measured as
GDP] declines.
Business stop hiring or lay workers off.
Recession/Depression
Seasonal Unemployment
Results from seasonal changes in the
weather or in demand for certain seasonrelated jobs.
landscaping, agricultural jobs, beach
resorts.
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Our Unemployment Rates
•Philadelphia: 4.9% (Feb 2016)
•Pennsylvania: 5.3% (Feb 2016)
•United States: 4.7% (May, 2016)
•Detroit, Michigan: 9.1% (Feb 2016)
*Bureau of Labor Statistics, United States
Department of Labor
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http://content.time.com/time/video/player/0,32068,114972083600
1_2092416,00.html