AIM: How do we as consumers impact our GNP? Objective: SWBAT analyze the GNP of the United States. SWBAT analyze business cycles. Do now: In your own words define the GDP. Compare the GDP to the GNP.
GNP GNP measures output of Americans, rather than output within the United States GDP + $ from U.S. Business overseas - $ from Foreign Business here = GNP Doesn’t help measure success of economy… more a measure of national economic power abroad
The Business Cycle In any capitalist country, the economy will go up and down as time passes This process looks like a roller coaster when graphed
The Business Cycle
Phases of the Business Cycle Expansion – real GDP is rising Peak – real GDP stops rising, unemployment % is low Contraction – falling real GDP, increasing unemployment Trough – lowest point, real GDP stops falling
Terms for Describing Contraction and Trough Recession – contraction happens for 6 straight months Depression – no official definition, just means extremely bad, long contraction Stagflation – drop in GDP plus rising inflation
Factors That Cause the Business Cycle Interest rates and credit fluctuations The Fed helps to restrict these effects by increasing and decreasing rates to slow and speed the business cycle
Factors That Cause the Business Cycle Consumer Expectations – they will spend if they believe times are good, they will save if they believe bad times are coming Spending means banks have less capital, economy will expand now but contract later High savings provides capital for future economic growth
Factors that Cause the Business Cycle Savings Rate - % of disposable (spendable) income saved by Americans Fun Fact! – Savings Rate generally drops in America during good economic times What effect does that have?
Factors That Cause the Business Cycle External Shocks – Negatively affect aggregate supply, thus dropping GDP while raising prices
Economic Indicators Things to watch to see if the economy is in contraction or expansion rate of new home construction stock market activity manufacturer’s new orders of capital goods