1

1.To examine the four phases of the business cycle. 2.To relate the business cycle to current trends in the market, analyzing specific companies. 3.To demonstrate clear knowledge of the growth phase and comparing companies which are in this category, those on the rise and those declining. 2

Was invented by the French physician and statistician Clemente Juglar First identified cyclical patterns within the economy Recognizes the business cycle occurring every eight to 11 years Is often referred to as “The Business Cycle” 3

Explains the fluctuations in economic activities Represents the patterns of expansion and contraction in the economy over long periods of time Divides into four parts: –growth –peak –recession –trough 4

5 Time Real GDP

May also be called expansion or recovery Occurs when persistent increases in the key measurements of aggregate economic activities are present Accounts for the increase in productivity among companies toward full production Causes a rise in price before full employment and production is attained 6 Aggregate: the sum or whole amount of something Productivity: measurement of physical output for each unit of input used, usually referring to labor hours

Are measured in terms of: –employment –income –sales –productivity 7

Can be viewed as a “virtuous cycle” 8 Sales Increase Production Increases Employment Increases Income Increases

Include the following: –business is newly formed –more branches of the business are opened –need for the product rises or is created –introduction of new or improved product 9

Accounts for the time when business activity has reached a maximum, including: –full employment –level of output at or near capacity Often causes higher prices Acts as a transition point from growth to recession 10

Include the following: –boom in the economy –sudden need or want of the product –availability of product rises –the product is unique for the time being 11

May also be referred to as contraction Follows the peak Is commonly defined as two consecutive quarterly declines in GDP Accounts for a decline in: –total output –income –employment –trade 12

Accounts for the total market value of all goods and services produced within the borders of a country during a specific time period 13

Occurs in all companies Rarely causes price level to fall –unless severe and prolonged, as in a depression Differs from depression –depression occurs when GDP drops by more than 10% while a recession experiences a less severe drop 14

Include the following: –product falls behind in usefulness, technology or want –value of the dollar declines –customer debt 15

Marks the lowest levels during a recession Accounts for the least amount of output and employment May be short or long lived Ends the period of recession and begins growth 16

Include the following: –the product is severely outdated –need or want for the product is at an all time low –the product has not changed over time –many customers already possess the product 17

Are used to foresee changes in the economy of a country Help predict peaks and troughs within business cycles Account for reports comprised of statistical data which are studied by economists Should not be trusted to always accurately predict changes in the economy 18

Include the following factors: –labor force –wages, labor costs and productivity –exports and imports –national defense –personal incomes and consumer attitudes –output, production and capacity utilization 19

Is an online service provider Gained popularity in the mid to late 1990’s Portrays a company which has experienced the business cycle 20

Began in the mid 1990’s Occurred for the following reasons: –marketed as being usable for people unfamiliar with computers –fee was changed from an hourly rate to monthly payment of $19.99 in

Occurred around 2000 when the company was valued at slightly over $200 billion Resulted from the following: –flat monthly fee rather than hourly rate –providing the user friendliest Internet service provider –advertisements allowing for customers to become familiar with AOL ® and its workings, such as “You’ve Got Mail ® ” 22

Started shortly after its peak Occurred due to the following: –competition from cheaper Internet service providers –the introduction of broadband high speed Internet –AOL ® running slowly due to high volumes of users 23

Has not yet occurred Is trying to be avoided as AOL ® has completed the following: –merged with Time Warner ®, a large and profitable multimedia company revenue still falls after this historically expensive merge –offered high speed Internet –recruited new employees to offer fresh ideas concerning the renewal of the company 24

The business cycle explains the fluctuations in economic activities The four parts of the business cycle are growth, peak, recession and trough Business cycle indicators are used to foresee changes in the economy, and include factors such as labor force, wages, exports and imports, national defense and output 25