Business Cycles ~What are the four phases of the business cycle? ~What are the four factors influence the business cycle?

Phases of the Business Cycle Business cycles are fluctuations, or changes in the market systems economic activity Expansion- period of economic expansion and growth EX: 1940-1944 Peak- high point of economic expansion Contraction/ Recession- real GDP stops increasing and BC enters a slow down period Depression- sever Recession (1930’s) Trough- occurs when demand, production, and employment reach their lowest levels After economy enters into recovery

Phases of the Business Cycle

Influences on the Business Cycle Business Investment- invest in capital goods (new Machinery) Low Investment Rate = Low Expansion Money and Credit Amount of money in circulation depends on government policies People and Businesses must barrow money to make purchases/ interest rates effect that P. Power Public Expectations Recessions and prosperous External Factors Political, world economics, and war

Predicting the Business Cycle Leading Indicators Anticipate the direction in which the economy is headed Changes in the # of building permits Orders for new capital and consumer goods Price of raw material Coincident Indicators Change in the economy as it moves from one phase to another of the Business Cycle and tell the upturn and downturn in the economy Personal income Sales volume Industrial production levels Lagging Indicators Change months after an upturn of downturn in the economy has begun and help and help predict the duration of that economic situation Use of consumer credit # and size of business incomes

Questions What are three signs that the business cycle is entering a period of expansion? What are three signs that the business cycle is entering a period of recession? List the 4 factors that influence the business cycle. List and describe the 3 types of economic indicators that economists use to determine the current phase of the business cycle and where the economy is headed.