Chapter 13 Sections 4 and 5 Business Fluctuations (Causes and Indicators)

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Causes of Business Fluctuations (AKA The Business Cycle)  Four main forces – Business Investment/Decisions, Government Activity, External Factors, and Psychological Factors

Business Decisions  Future Outlook – Things are going good they will spend more, create jobs. Things going bad, they will spend less, cut jobs.  New Innovations – New inventions or production techniques.

Government  Policies on taxing and spending money (Fiscal Policy)  Controlling the money supply (Monetary Policy)

External Factors  Examples…  Wars  Availability of raw materials

Psychological Reactions  Panic (Ex. 9/11, this recent recession)

Economic Indicators  Economic statistics that measure the economy

Leading Indicators  Stats that may show what will happen in the economy (Major Indicators/Important)

Coincident Indicators  Changes that occur at the same time as the change in the business cycle.

Lagging Indicators  Seem to happen later on in the business cycle. Typically gives a clue as to the duration (length) of the phase.