Business Fluctuations

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Presentation transcript:

Business Fluctuations Causes and Indicators Ch. 13.5

Understanding Fluctuations What might cause the Business cycle to expand and contract? Why is it important to know and understand the causes of fluctuation?

Causes of Fluctuations Business Investments Business decisions that include the expansion or contraction on their capital investment Innovations Inventions and new productions techniques

Causes Cont… Government Activity Affects business cycle through.. taxing and spending control of the money supply

Causes Cont.. External Factors Factors outside of a nation’s economy affect the business cycle.

Causes Cont.. Psychological Factors People’s reactions to events that may cause contraction or recovery

Economic Indicators Stats that measure variables in economy used to learn about the current and future state of the economy Leading indicators Stats that point to what will happen in economy. Coincident indicators Economic indicators that change at the same time as changes in overall business activity Lagging indicators Indicators that seem to lag behind changes in overall business activity

Leading Indicators Examples Average weekly hours for production workers Weekly claims for unemployment Number of building permits issued for private housing Stock Prices Changes in Consumer Expectations

Coincident Indicators Examples Personal income minus transfer payments Rate of industrial production Sales of manufacturers, wholesalers, and retailers # of non-agricultural employed

Lagging Indicators Examples Average Length of unemployment Labor cost per unit of output # of industrial and commercial loans to be repaid Ratio of consumer debt to personal income