Copyright © 2013 N.S.

What Do You Know About…? 3) Unemployment 4) Inflatio n Deflati on 1) Cycle Write down words that come to mind when you think of each of the following. There are no right or wrong answers! 2) Gross Domestic Product (GDP) 5) Economic Growth Ask yourself these questions: 1) What do I remember about these concepts from my previous classes? 2) How have I heard these words used in the news? 3) How do these affect me?

Copyright © 2013 N.S. “The Business Cycle” Targets Knowledge 1Understand the different components of the business cycle. Knowledge 2Understand the causes and effects of a recession. Reasoning 5Explain how the three major indicators of an economy’s performance are related (GDP, unemployment, and inflation) Skill 1Create an illustration of the business cycle.

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion.

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time.

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time. 2) Downturns in the cycle are known as recessions. Severe downturns are depressions. Recessio n

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time. 2) Downturns in the cycle are known as recessions. Severe downturns are depressions. Recessio n 3) Upturns in the cycle are known as expansions, or recoveries. Expansion

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time. 2) Downturns in the cycle are known as recessions. Severe downturns are depressions. Recessio n 3) Upturns in the cycle are known as expansions, or recoveries. Expansion 4) Maximum economic output is called a peak. Peak

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time. 2) Downturns in the cycle are known as recessions. Severe downturns are depressions. Recessio n 3) Upturns in the cycle are known as expansions, or recoveries. Expansion 4) Maximum economic output is called a peak. Peak 5) Minimum economic output is called a trough. Trough

Copyright © 2013 N.S. What Is the Business Cycle? The business cycle describes the short-run fluctuation between economic recession and expansion. 1) The business cycle diagram compares the level of output (GDP) over time. 2) Downturns in the cycle are known as recessions. Severe downturns are depressions. Recessio n 3) Upturns in the cycle are known as expansions, or recoveries. Expansion 4) Maximum economic output is called a peak. Peak 5) Minimum economic output is called a trough. Trough 6) There is steady growth in the long run.

Copyright © 2013 N.S. United States Business Cycles The graph below illustrates the business cycles that have occurred in the United States over the last 62 years. Note that this graph shows the change in the real GDP growth RATE.

Copyright © 2013 N.S. United States Business Cycles The graph below illustrates the business cycles that have occurred in the United States over the last 62 years. Note that this graph shows the change in the real GDP growth RATE. 1) U.S. recessions began in each of the following years: Troughs

Copyright © 2013 N.S. United States Business Cycles The graph below illustrates the business cycles that have occurred in the United States over the last 62 years. Note that this graph shows the change in the real GDP growth RATE. 1) U.S. recessions began in each of the following years: Troughs 2) Recessions have lasted on average about one year.

Copyright © 2013 N.S. United States Business Cycles The graph below illustrates the business cycles that have occurred in the United States over the last 62 years. Note that this graph shows the change in the real GDP growth RATE. 1) U.S. recessions began in each of the following years: Troughs 2) Recessions have lasted on average about one year. 3) Periods of expansion between recessions last about 5 years. Peaks

Copyright © 2013 N.S. United States Business Cycles The graph below illustrates the business cycles that have occurred in the United States over the last 62 years. 1) U.S. recessions began in each of the following years: ) Recessions have lasted on average about one year. 3) Periods of expansion between recessions last about 5 years. 4) In the long run, the U.S. economy has steadily grown.

Copyright © 2013 N.S. During Recessions As a general rule, the following events occur during recessions.

Copyright © 2013 N.S. During Recessions As a general rule, the following events occur during recessions. 1) GDP Decreases Aggregate output (total final goods and services produced) decreases during economic downturns.

Copyright © 2013 N.S. During Recessions As a general rule, the following events occur during recessions. 1) GDP Decreases Aggregate output (total final goods and services produced) decreases during economic downturns. 2) Unemployment Increases Because the amount of goods and services produced decreases, fewer workers are needed.

Copyright © 2013 N.S. During Recessions As a general rule, the following events occur during recessions. 1) GDP Decreases Aggregate output (total final goods and services produced) decreases during economic downturns. 2) Unemployment Increases Because the amount of goods and services produced decreases, fewer workers are needed. 3) Inflation Decreases Because fewer goods and services are purchased, the price level in the economy decreases.

Copyright © 2013 N.S. During Expansions As a general rule, the following events occur during expansions.

Copyright © 2013 N.S. During Expansions As a general rule, the following events occur during expansions. 1) GDP Increases Aggregate output increases as people begin to demand more goods and services.

Copyright © 2013 N.S. During Expansions As a general rule, the following events occur during expansions. 1) GDP Increases Aggregate output increases as people begin to demand more goods and services. 2) Unemployment Decreases In order to supply consumers with increased demand, producers must hire more workers.

Copyright © 2013 N.S. During Expansions As a general rule, the following events occur during expansions. 1) GDP Increases Aggregate output increases as people begin to demand more goods and services. 2) Unemployment Decreases In order to supply consumers with increased demand, producers must hire more workers. 3) Inflation Increases Because more money is being spent, the overall price level for the economy increases.

Copyright © 2013 N.S. Other Indicators GDP, Unemployment, and Inflation are the three main tools for measuring an economy’s performance. There are, however, dozens of other indicators.

Copyright © 2013 N.S. Other Indicators GDP, Unemployment, and Inflation are the three main tools for measuring an economy’s performance. There are, however, dozens of other indicators. 1) Leading Indicators Leading indicators become weak right before a recession and strong right before an expansion. Some examples include building permits for new housing units, the Standard & Poor’s 500 stock index, and the M2 money supply.

Copyright © 2013 N.S. Other Indicators GDP, Unemployment, and Inflation are the three main tools for measuring an economy’s performance. There are, however, dozens of other indicators. 1) Leading Indicators Leading indicators become weak right before a recession and strong right before an expansion. Some examples include number of employees on payrolls, industrial production, and manufacturing. 2) Coincident Indicators These change at roughly the same time as the economy.

Copyright © 2013 N.S. Other Indicators GDP, Unemployment, and Inflation are the three main tools for measuring an economy’s performance. There are, however, dozens of other indicators. 1) Leading Indicators Leading indicators become weak right before a recession and strong right before an expansion. 2) Coincident Indicators These change at roughly the same time as the economy. 3) Lagging Indicators These do not change until after the economy has already begun to enter a recession or an expansion. Some examples include outstanding consumer credit, the CPI (inflation), and the prime rate charged by banks.

Copyright © 2013 N.S. Stabilizing the Business Cycle One of the key goals of macroeconomics is to smooth out the ups and downs of the business cycle.

Copyright © 2013 N.S. Stabilizing the Business Cycle One of the key goals of macroeconomics is to smooth out the ups and downs of the business cycle. 1) Controlling the severity of recessions means people have jobs and money for spending.

Copyright © 2013 N.S. Stabilizing the Business Cycle One of the key goals of macroeconomics is to smooth out the ups and downs of the business cycle. 1) Controlling the severity of recessions means people have jobs and money for spending. 2) Controlling excessively strong expansions means prices will not rise out of control.

Copyright © 2013 N.S. Stabilizing the Business Cycle One of the key goals of macroeconomics is to smooth out the ups and downs of the business cycle. 1) Controlling the severity of recessions means people have jobs and money for spending. 2) Controlling excessively strong expansions means prices will not rise out of control. 3) Government uses fiscal policy, which uses taxes and spending to control the economy.

Copyright © 2013 N.S. Stabilizing the Business Cycle One of the key goals of macroeconomics is to smooth out the ups and downs of the business cycle. 1) Controlling the severity of recessions means people have jobs and money for spending. 2) Controlling excessively strong expansions means prices will not rise out of control. 3) Government uses fiscal policy, which uses taxes and spending to control the economy. 4) The Federal Reserve uses monetary policy, which alters the money supply and interest rate.

Copyright © 2013 N.S. Business Cycle Fluctuations A)CREATE AN ILLUSTRATION OF THE BUSINESS CYCLE Draw an illustration of the business cycle. Be sure to label your diagram using all of the words from the box. B)IDENTIFY ECONOMIC INDICATORS Using the Business Cycle Fluctuations Cards, identify whether each event indicates an expansion or a recession. Turn one card over at a time and discuss as a group. Then, write the name of the event under the proper heading.

Copyright © 2013 N.S. “The Business Cycle” Targets Knowledge 1Understand the different components of the business cycle. Knowledge 2Understand the causes and effects of a recession. Reasoning 5Explain how the three major indicators of an economy’s performance are related (GDP, unemployment, and inflation) Skill 1Create an illustration of the business cycle.

Copyright © 2013 N.S. Resources Data regarding Real GDP growth rates and Real GDP