Agenda- 12/3 1. Review test 2. Ch. 13 Sec. 1 & 2 Lecture (RS) 3. Book work Ch. 13 Sec. 1 & 2 (LS) 4. HW: Community Service, Fri, 12/12

Unit 4 – Business Cycles: Economic Instability (Start Unit 4 in your notebook) Ch. 13, Sect. 1-2

INFLATION Inflation - A sustained rise in the general level of prices. REAL GDP Real GDP is GDP with inflation removed.

How do we measure Inflation? The Consumer Price Index (CPI) a # used to calculate in the avg. price level for a # of market basket items consumed by a typical urban family. 80,000 items in 364 categories, sampled from 85 geographical areas A price index is a number that compares prices in one year with some earlier base year. Prices & Inflation 4:49)

Business Cycles and Fluctuations Economic growth is interrupted by business cycles (systematic ups and downs of real GDP)

Phases of the Business Cycle Expansion –a productive and increasing period in business activity. Recession–a period where business activity declines and GDP actually decreases for two consecutive quarters (6 months) Depression–acute shortages, high unemployment, excess capacity, GDP decreases four or more quarters.

Phases of the Business Cycle (cont) “W” - marks the spot where the expansion stops increasing. Also known as a PEAK. Section “X” - Contraction: Economy reaches it peak and drops into a trough.

Phases of the Business Cycle (cont) “Y” – marks the spot where the contraction stops decreasing. Also known as a TROUGH. Section “Z” - Second phase is Expansion (period of recovery from a recession) Expansion continues until it reaches its peak.

Phases continued… Trend line: a line showing the steady growth path of the economy. Business Cycles Review Video quick (play now) One more BC review

Timing a Recession

Causes of Inflation Demand-Pull – excessive demand “pulls” prices up Cost Push – rising input costs “push” up the cost of goods. Manufacturers raise prices to recover the costs

The Great Depression (write blue only) Stock Market Crash on 10/29/1929 marked the beginning of the GD Between , real GDP dropped almost 50% and unemployment rose almost 800%. ( 8 times more unemployment than before the GD ) 25% of all workers in U.S. were unemployed; Avg. manufacturing wage dropped from 55 cents to 5 cents an hour. Bank failures; low money supply led to depression scrip

Causes of the Great Depression (read, don’t write) Huge disparities in the distribution of income Easy, plentiful credit Repeal of foreign loans leading to less export sales High tariffs on foreign imports Decline of world trade

Business Cycles since WWII (read, don’t write) Since 1945, the U.S. economy has expanded dramatically with only a few, short lived recessions. Avg. recession =11 months Avg. expansion=43 months (“Trend Line” shows a gradual INCREASE)

Causes of fluctuations in the Business Cycle (title + BLUE) Changes in Capital Expenditures: When economy is expanding, businesses invest in capital goods; eventually, they stop investment and recession/layoffs result. Inventory Adjustments: Businesses cut back on inventories at the first sign of recession; Fluctuates real GDP.

Causes continued… Monetary Factors: credit and loan policies of the Federal Reserve; easy loans and low interest rates lead to investment. External Shocks: increase in oil prices, wars, or international conflicts

Welcome back classwork ; ) (Start Unit 4 in your notebook) p. 359: Answer # 1 (first 9 terms) & #2 – 3 ; ) P. 378: # 20 & 22