Download Lesson 16 Visuals - Learning, Earning, and Investing

LESSON 16
THE STOCK MARKET
AND THE ECONOMY: CAN YOU
FORECAST THE FUTURE?
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 16.1
LESSON 16 – THE STOCK MARKET AND THE ECONOMY:
CAN YOU FORECAST THE FUTURE?
A Business Cycle
LEARNING, EARNING, AND INVESTING
FOR A
•
Expansion: The economy
is growing. GDP, income,
and employment increase.
Consumption and
investment increase.
Businesses are
expanding. Interest rates
may rise. There may be
concerns about inflation.
•
Peak: The high point of
the expansion, and also a
turning point. After the
peak, an economy begins
to contract.
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 16.2
LESSON 16 – THE STOCK MARKET AND THE ECONOMY:
CAN YOU FORECAST THE FUTURE?
A Business Cycle (Cont.)
• Contraction: The economy is declining. GDP, income,
and employment decrease. Consumption and
investment decrease. Business sales decline. Interest
rates and prices my fall.
• Trough: This is the low point of the contraction, and
also a turning point. After a trough, the economy
begins to expand.
• Recession: A period of significant decline in total
output, income, and employment, usually lasting from
six months to a year.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 16.3
LESSON 16 – THE STOCK MARKET AND THE ECONOMY:
CAN YOU FORECAST THE FUTURE?
How Do Stock Prices Affect the Economy?
1. Stock prices affect consumption.
Increases in stock prices mean that shareholders are
wealthier. Increased wealth leads to increased
consumption. Decreases in stock prices means that
shareholders are poorer, and this decreases consumption.
2. Stock prices affect investment.
Increases in the price of a stock means that the value of
the corporation has increased. This increased value leads
to increased investment and business expansion.
Decreases in the price of a stock mean that the value of
the corporation has decreased. This decreased value may
discourage investment and business expansion.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 16.4
LESSON 16 – THE STOCK MARKET AND THE ECONOMY:
CAN YOU FORECAST THE FUTURE?
How Do Stock Prices Affect the Economy? (Cont.)
3. Stock prices affect expectations.
When stock prices increase, investors feel optimistic about the
future of the economy. This optimism may lead to more spending
and more production. When stock prices fall, investors may feel
pessimistic about the future of the economy. This pessimism
may cause them to hold back on spending and production.
4. Stock prices are a leading indicator of economic activity.
A leading indicator is a statistic that often changes in advance of
real GDP changes. Persistent increases in stock prices often
precede increases in GDP and economic expansion by a few
months. Persistent decreases in stock prices often precede
declining GDP and recession by a few months.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY