Download The Business Cycle

Copyright © 2013 N.S.
Copyright © 2013 N.S.
What Do You Know About…?
Write down words that come to mind when you think of each of the following.
There are no right or wrong answers!
1)
Cycle
2)
Gross Domestic Product
(GDP)
3)
Unemployment
4)
5)
Inflatio
n
Ask yourself these questions:
Deflati
on
Economic Growth
Copyright © 2013 N.S.
1) What do I remember about
these concepts from my
previous classes?
2) How have I heard these
words used in the news?
3) How do these affect me?
“The Business Cycle” Targets
Knowledge 1
Understand the different components of the
business cycle.
Knowledge 2
Understand the causes and effects of a
recession.
Reasoning 5
Explain how the three major indicators of
an economy’s performance are related
(GDP, unemployment, and inflation)
Skill 1
Create an illustration of the business cycle.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
2) Downturns in the cycle are
known as recessions. Severe
downturns are depressions.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
2) Downturns in the cycle are
known as recessions. Severe
downturns are depressions.
3) Upturns in the cycle are known
as expansions, or recoveries.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
2) Downturns in the cycle are
known as recessions. Severe
downturns are depressions.
3) Upturns in the cycle are known
as expansions, or recoveries.
4) Maximum economic output is
called a peak.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
2) Downturns in the cycle are
known as recessions. Severe
downturns are depressions.
3) Upturns in the cycle are known
as expansions, or recoveries.
4) Maximum economic output is
called a peak.
5) Minimum economic output is
called a trough.
Copyright © 2013 N.S.
What Is the Business Cycle?
The business cycle describes the short-run fluctuation between economic
recession and expansion.
1) The business cycle diagram
compares the level of output
(GDP) over time.
2) Downturns in the cycle are
known as recessions. Severe
downturns are depressions.
3) Upturns in the cycle are known
as expansions, or recoveries.
4) Maximum economic output is
called a peak.
5) Minimum economic output is
called a trough.
6) There is steady growth in the
long run.
Copyright © 2013 N.S.
United States Business Cycles
The graph below illustrates the business cycles that have occurred in the
United States over the last 62 years.
Note that this graph shows the change in the real GDP growth RATE.
Copyright © 2013 N.S.
United States Business Cycles
The graph below illustrates the business cycles that have occurred in the
United States over the last 62 years.
1) U.S. recessions began in each
of the following years:
1953
1958
1960
1969
1973
1980
1981
1990
2001
2007
Troughs
Note that this graph shows the change in the real GDP growth RATE.
Copyright © 2013 N.S.
United States Business Cycles
The graph below illustrates the business cycles that have occurred in the
United States over the last 62 years.
1) U.S. recessions began in each
of the following years:
1953
1958
1960
1969
1973
1980
1981
1990
2001
2007
2) Recessions have lasted on
average about one year.
Troughs
Note that this graph shows the change in the real GDP growth RATE.
Copyright © 2013 N.S.
United States Business Cycles
The graph below illustrates the business cycles that have occurred in the
United States over the last 62 years.
1) U.S. recessions began in each
of the following years:
1953
1958
1960
1969
1973
1980
1981
1990
2001
2007
2) Recessions have lasted on
average about one year.
3) Periods of expansion between
recessions last about 5 years.
Peaks
Troughs
Note that this graph shows the change in the real GDP growth RATE.
Copyright © 2013 N.S.
United States Business Cycles
The graph below illustrates the business cycles that have occurred in the
United States over the last 62 years.
1) U.S. recessions began in each
of the following years:
1953
1958
1960
1969
1973
1980
1981
1990
2001
2007
2) Recessions have lasted on
average about one year.
3) Periods of expansion between
recessions last about 5 years.
4) In the long run, the U.S.
economy has steadily grown.
Copyright © 2013 N.S.
During Recessions
As a general rule, the following events occur during recessions.
Copyright © 2013 N.S.
During Recessions
As a general rule, the following events occur during recessions.
1) GDP Decreases
Aggregate output (total final goods
and services produced) decreases
during economic downturns.
Copyright © 2013 N.S.
During Recessions
As a general rule, the following events occur during recessions.
1) GDP Decreases
Aggregate output (total final goods
and services produced) decreases
during economic downturns.
2) Unemployment Increases
Because the amount of goods and
services produced decreases, fewer
workers are needed.
Copyright © 2013 N.S.
During Recessions
As a general rule, the following events occur during recessions.
1) GDP Decreases
Aggregate output (total final goods
and services produced) decreases
during economic downturns.
2) Unemployment Increases
Because the amount of goods and
services produced decreases, fewer
workers are needed.
3) Inflation Decreases
Because fewer goods and services
are purchased, the price level in the
economy decreases.
Copyright © 2013 N.S.
During Expansions
As a general rule, the following events occur during expansions.
Copyright © 2013 N.S.
During Expansions
As a general rule, the following events occur during expansions.
1) GDP Increases
Aggregate output increases as people
begin to demand more goods and
services.
Copyright © 2013 N.S.
During Expansions
As a general rule, the following events occur during expansions.
1) GDP Increases
Aggregate output increases as people
begin to demand more goods and
services.
2) Unemployment Decreases
In order to supply consumers with
increased demand, producers must
hire more workers.
Copyright © 2013 N.S.
During Expansions
As a general rule, the following events occur during expansions.
1) GDP Increases
Aggregate output increases as people
begin to demand more goods and
services.
2) Unemployment Decreases
In order to supply consumers with
increased demand, producers must
hire more workers.
3) Inflation Increases
Because more money is being spent,
the overall price level for the economy
increases.
Copyright © 2013 N.S.
Other Indicators
GDP, Unemployment, and Inflation are the three main tools for measuring an
economy’s performance. There are, however, dozens of other indicators.
Copyright © 2013 N.S.
Other Indicators
GDP, Unemployment, and Inflation are the three main tools for measuring an
economy’s performance. There are, however, dozens of other indicators.
1) Leading Indicators
Leading indicators become weak right
before a recession and strong right
before an expansion.
Some examples include building permits for
new housing units, the Standard & Poor’s 500
stock index, and the M2 money supply.
Copyright © 2013 N.S.
Other Indicators
GDP, Unemployment, and Inflation are the three main tools for measuring an
economy’s performance. There are, however, dozens of other indicators.
1) Leading Indicators
Leading indicators become weak right
before a recession and strong right
before an expansion.
2) Coincident Indicators
These change at roughly the same
time as the economy.
Some examples include number of
employees on payrolls, industrial production,
and manufacturing.
Copyright © 2013 N.S.
Other Indicators
GDP, Unemployment, and Inflation are the three main tools for measuring an
economy’s performance. There are, however, dozens of other indicators.
1) Leading Indicators
Leading indicators become weak right
before a recession and strong right
before an expansion.
2) Coincident Indicators
These change at roughly the same
time as the economy.
3) Lagging Indicators
These do not change until after the
economy has already begun to enter a
recession or an expansion.
Copyright © 2013 N.S.
Some examples include outstanding
consumer credit, the CPI (inflation), and the
prime rate charged by banks.
Stabilizing the Business Cycle
One of the key goals of macroeconomics is to smooth out the ups and downs of
the business cycle.
Copyright © 2013 N.S.
Stabilizing the Business Cycle
One of the key goals of macroeconomics is to smooth out the ups and downs of
the business cycle.
1) Controlling the severity of
recessions means people have
jobs and money for spending.
Copyright © 2013 N.S.
Stabilizing the Business Cycle
One of the key goals of macroeconomics is to smooth out the ups and downs of
the business cycle.
1) Controlling the severity of
recessions means people have
jobs and money for spending.
2) Controlling excessively strong
expansions means prices will not
rise out of control.
Copyright © 2013 N.S.
Stabilizing the Business Cycle
One of the key goals of macroeconomics is to smooth out the ups and downs of
the business cycle.
1) Controlling the severity of
recessions means people have
jobs and money for spending.
2) Controlling excessively strong
expansions means prices will not
rise out of control.
3) Government uses fiscal
policy, which uses taxes and
spending to control the economy.
Copyright © 2013 N.S.
Stabilizing the Business Cycle
One of the key goals of macroeconomics is to smooth out the ups and downs of
the business cycle.
1) Controlling the severity of
recessions means people have
jobs and money for spending.
2) Controlling excessively strong
expansions means prices will not
rise out of control.
3) Government uses fiscal
policy, which uses taxes and
spending to control the economy.
4) The Federal Reserve uses
monetary policy, which alters the
money supply and interest rate.
Copyright © 2013 N.S.
Business Cycle Fluctuations
A)
CREATE AN ILLUSTRATION OF THE
BUSINESS CYCLE
Draw an illustration of the business cycle. Be sure
to label your diagram using all of the words from
the box.
B)
IDENTIFY ECONOMIC INDICATORS
Using the Business Cycle Fluctuations Cards,
identify whether each event indicates an
expansion or a recession. Turn one card over at a
time and discuss as a group. Then, write the
name of the event under the proper heading.
Copyright © 2013 N.S.
“The Business Cycle” Targets
Knowledge 1
Understand the different components of the
business cycle.
Knowledge 2
Understand the causes and effects of a
recession.
Reasoning 5
Explain how the three major indicators of
an economy’s performance are related
(GDP, unemployment, and inflation)
Skill 1
Create an illustration of the business cycle.
Copyright © 2013 N.S.
Resources
http://www.bea.gov/national/index.htm#gdp: Data regarding Real GDP growth rates and Real GDP
Copyright © 2013 N.S.