Download Economics in History

Economics in History
The Business Cycle
 The Business Cycle: Short-run changes in the economy between
expansion/growth and contraction/recession
 Boom and Bust!
Business Cycle Terms
 Boom: period of growth beyond what is normally produced in a
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year
Expansion/Recovery: economic upturn with increasing
employment and output
Panic: period of fear where economic output falls by a large
amount
Depression: severe and prolonged economic downturn
Recession: economic downturn where production of goods and
employment are falling
Business Cycle Terms
 GDP- Market value of all of all final goods and services
completed
 Unemployment Rate- Percentage of people that don’t have
jobs that are able to work in the labor force
 Inflation- Continuing of the increases price of goods over
time.
Supply and Demand
 Law of Supply: businesses are more willing to produce and
sell goods when prices are higher
 Law of Demand: people are more willing to buy goods
when prices are lower
Impact of Changes in Supply or
Demand
 When supply or demand change
(shift), equilibrium will also change.
 When Supply decreases prices go up.
 When Demand increases prices go up.
 When Supply increases prices go
down.
 When Demand decreases prices go
down.
Stock Market
 Stock: a share or portion of a company that may be bought and
sold in a marketplace
 Selling stock is a way companies access funds to expand their
business
 Buying stock is a way people can earn profits on the part of the
company they own
 As more people want to buy a certain stock, its value will increase
 As the company does well they will turn profits into dividends ($)
that shareholders receive
Buying on Margin
 Buying on Margin was common in the 1920s
 Put down 10-20% of the value of the stock you wanted to purchase
and borrow the rest of the money
 Pay back the loan after the value of the stock increases
 If the stock does not increase the lender might issue a margin call
and force the borrower to pay back the loan immediately
 Today this is often done by “shorting” a stock (Borrow it, sell it high,
and then buy it for real hoping for lower price)
NYSE and Dow Jones Average