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2 Objectives  Give an example that shows how a change in one part of the economy can cause a change in another part.  List the three phases of the business cycle.  Make a graph of a business cycle and label the phases.

3 Objectives  Describe economic conditions during each phase of the business cycle.  Describe the level of GDP and unemployment rate during each phase of the cycle.

4 Marketing Terms  expansion  contraction  business cycle  upward spiral  downward spiral  prosperity  recession  depression  recovery

5  The status of a market economy goes up and down, like a roller coaster

6 Market Economy Dynamics  A market economy is either  growing or  slowing List some signs of economic growth. List some signs of economic slowdown.

7 Market Economy Dynamics  Expansion  period of economic growth  prosperity  economic good times  Contraction  period of economic slowdown  hardship  economic bad times

8 Market Economy Dynamics  Periods of expansion  alternate with –periods of contraction  This alternation  of economic expansion and contraction  is called the business cycle

9 Economic Spirals  All parts of an economy are interconnected  A change in one part  can cause a change in another part

10 Economic Spirals  Upward spiral  When one part of the economy does well  it causes other parts of the economy –to do well Productivity up Expansion Sales up Company earns more Workers buy more Workers earn more

11 Economic Spirals  Downward spiral  When one part of the economy does poorly  it causes other parts of the economy –to do poorly Productivity down Contraction Sales down Company earns less Workers buy less Workers earn less

12 The Business Cycle  To understand business cycles  economists make graphs  They plot GDP or  percent change in GDP –over time  Even though each business cycle  is different  each has the same basic shape

13 Business Cycle Time GDP Expansion Contraction Peak Trough Recovery Recession Prosperity

14 How is the graph of a business cycle like a roller coaster?

15 The Business Cycle  Every business cycle graph has  one peak (high point)  one trough (low point)  Every business cycle graph has  one period of expansion  one period of contraction

16 The Business Cycle  The high and low points on a graph help identify the three phases in each business cycle  prosperity  recession  recovery

17 Business Cycle Time GDP Recovery Recession Prosperity

18 Prosperity  Prosperity  occurs around the peak of the business cycle  economic good times  people doing well What happens economically during prosperity?

19 Prosperity  During a period of prosperity  consumers buy more  retail sales rise and inventories fall  production increases  businesses hire more workers  Economic indicators  GDP rises  unemployment is low  CPI and inflation rise only a little

20 Recession  Recession  occurs on the down slope of the business cycle  economic hard times  people doing poorly What happens economically during recession?

21 Recession  During a period of recession  consumers buy less  retail sales fall and inventory rises  production slows  businesses fire workers  Economic indicators  GDP falls  unemployment rises

22 Depression  Depression  economic contraction  severe  long lasting  causes widespread economic hardship  Great Depression  1929 to 1941

23 Recovery  Recovery  occurs after a recession  occurs on the up slope of a business cycle  economy getting better  people starting to do better

24 Recovery  During a recovery period  consumers start buying more  retail sales rise and inventories fall  businesses start producing more  businesses hire more people  Economic indicators  GDP rises  unemployment starts falling

25 Business Cycle and Economic Indicators  Each phase of the business cycle  has typical economic indicators  Economists and marketers  study economic indicators –to predict what will happen in the economy –to help make good business decisions

26 * Sometimes before and during a depression, inflation is very, very high. Business Cycle and Economic Indicators Prosperity before the peak Recession contraction Depression severe contraction Recovery expansion GDP  Unemployment Rate  CPI/ Inflation **  Stock Market 

27 Review  What is the difference between expansion and contraction in the economy?  What is a business cycle?  Describe the three phases in a business cycle.  What is the impact of economic interconnectedness?

28 Glossary  business cycle. Alternating periods of expansion and contraction in the economy.  contraction. Period of economic slowdown.  depression. Economic slowdown that is very severe and lasts a long time.

29 Glossary  downward spiral. Process that starts moving downward slowly, and then starts moving faster and faster downward.  expansion. Period of economic growth.  prosperity. Economic good times, when people are doing well financially.

30 Glossary  recession. Period of economic contraction.  recovery. Period after a recession during which the economy is expanding.  upward spiral. Process that starts moving upward slowly, and then increases its upward movement faster and faster.