Download Economic Instabilty Ch. 14, sect. 1

Agenda- 12/3
1. Review test
2. Ch. 13 Sec. 1 & 2 Lecture (RS)
3. Book work Ch. 13 Sec. 1 & 2 (LS)
4. HW: Community Service, Fri, 12/12
Unit 4 –
Business Cycles:
Economic Instability
(Start Unit 4 in your notebook)
Ch. 13, Sect. 1-2
INFLATION

Inflation - A sustained rise in the general level
of prices.
 REAL GDP

Real GDP is GDP with inflation removed.
How do we measure Inflation?
 The Consumer Price Index (CPI)
a # used to calculate in the avg. price level
for a # of market basket items consumed by a
typical urban family.

80,000 items in 364 categories, sampled from
85 geographical areas
 A price index is a number that compares
prices in one year with some earlier base
year.
Prices & Inflation
(Stop @ 4:49)
Business Cycles and Fluctuations
 Economic growth is interrupted by business
cycles (systematic ups and downs of real
GDP)
Phases of the Business Cycle
 Expansion –a productive and increasing
period in business activity.
 Recession–a period where business activity
declines and GDP actually decreases for two
consecutive quarters (6 months)
 Depression–acute shortages, high
unemployment, excess capacity, GDP
decreases four or more quarters.
Phases of the Business Cycle (cont)
 “W” - marks the spot where the expansion
stops increasing. Also known as a PEAK.
 Section “X” - Contraction: Economy
reaches it peak and drops into a trough.
Phases of the Business Cycle (cont)
 “Y” – marks the spot where the contraction
stops decreasing. Also known as a TROUGH.
 Section “Z” - Second phase is Expansion


(period of recovery from a recession)
Expansion continues until it reaches its peak.
Phases continued…
 Trend line: a line showing the steady growth path of
the economy.
Business Cycles Review Video quick (play now)
One more BC review
Timing a Recession
Causes of Inflation
 Demand-Pull – excessive demand
“pulls” prices up
 Cost Push – rising input costs “push” up
the cost of goods. Manufacturers raise
prices to recover the costs
The Great Depression (write blue only)
 Stock Market Crash on 10/29/1929 marked
the beginning of the GD
 Between 1929-1933, real GDP dropped
almost 50% and unemployment rose almost
800%. ( 8 times more unemployment than
before the GD )
 25% of all workers in U.S. were unemployed;
Avg. manufacturing wage dropped from 55
cents to 5 cents an hour.
 Bank failures; low money supply led to
depression scrip
Causes of the Great Depression
(read, don’t write)
 Huge disparities in the distribution of income
 Easy, plentiful credit
 Repeal of foreign loans leading to less export
sales
 High tariffs on foreign imports
 Decline of world trade
Business Cycles since WWII
(read, don’t write)
 Since 1945, the U.S. economy has expanded
dramatically with only a few, short lived
recessions.
 Avg. recession =11 months
 Avg. expansion=43 months

(“Trend Line” shows a gradual INCREASE)
Causes of fluctuations in the
Business Cycle (title + BLUE)
 Changes in Capital Expenditures: When
economy is expanding, businesses invest in
capital goods; eventually, they stop
investment and recession/layoffs result.
 Inventory Adjustments: Businesses cut
back on inventories at the first sign of
recession; Fluctuates real GDP.
Causes continued…
 Monetary Factors: credit and loan policies of
the Federal Reserve; easy loans and low
interest rates lead to investment.
 External Shocks: increase in oil prices,
wars, or international conflicts
Welcome back classwork ; )
(Start Unit 4 in your notebook)
 p. 359:
 Answer # 1 (first 9 terms)

& #2 – 3 ; )
 P. 378:
 # 20 & 22