Download The Business Cycle

The Business Cycle
The Business Cycle
•
Expansion - a period of economic growth as measured by
a rise in real GDP
•
Contraction - an economic decline marked by falling real
GDP
•
Peak - the height of an economic expansion
•
Trough - the lowest point in an economic contraction
•
Recession - prolonged economic contraction. GDP falls
for two consecutive quarters (6 months)
GDP
Gross Domestic Product
What is GDP?
We can use GDP to help determine the health and progress of a
country’s economy
•
Gross Domestic Product (GDP) - the dollar value of all
final goods and services produced within a country’s
borders in a given year.
•
Final Goods and Services - products in the form sold to
consumers
•
Intermediate Goods - used in the production of final goods
remember the factors of
production pizza shop?
When Calculating
GDP...
We would include the dollar value of
the Pizza
Not the dollar value of the tomatoes,
cheese, flour, pepperonis, and sauce
it is made of
We would include the dollar value of
the Dresser
Not the dollar value of the wood,
hardware, and glue it is made of
• Analyzing
the GDP of a country from year to
year will help in determining the health and
progress of a nation’s economy.
• United
States GDP:
2009 - $13.9 Trillion
2010 - $14.4 Trillion
2011 - $14.9 Trillion
U.S. GDP 1960-2011
What other concept does this graph show?
GDP in current U.S. dollars.
Not adjusted for inflation
Inflation
Inflation - a general increase in prices
What would cause the price of
a burger to increase from 15
cents to just over $1?
Causes of Inflation - changes in prices,
income, and money supply
•
Wages and Prices
•
Purchasing Power - the ability to purchase
goods and services. As prices rise, the
purchasing power of money declines.
•
Money Supply - the amount of money in the
economy. This is the primary tool the
government uses to regulate inflation in the
U.S. economy.
The Wage-Price Spiral
The Process by which
rising wages cause
higher prices, and
higher prices cause
higher wages.
The Wage-Price Spiral
•
The Wage-Price Spiral
Inflation Demonstration
Inflation Activity Questions
•
Based on our definition of inflation, Why is this activity a
demonstration of inflation?
•
What type of money were we using in this activity?
•
Explain how the money in this activity was used as a “unit
of account”
•
Did the value of the goods change?
•
Did the value of the money change?
•
How might inflation affect investments?