The Business Cycle Mr. Donecker 10/4/12

Bell Activity Last year, the President said, “Right now, a company can get a tax break for moving a plant over-seas.” Which part(s) of GDP would this affect? How would the overall GDP be affected?

Cycle What is a cycle? Any complete round, or series of occurrences that repeats or is repeated Where are there cycles in our lives? Carbon cycle, water cycle, nitrogen cycle, life cycle

The Business Cycle The movement of the economy from one condition to another and back again (the ups and downs of GDP) Prosperity Recession Depression Recovery

Prosperity –Low Unemployment –High Demand for goods and services –High Productivity –Called a “boom” period Prosperity

Recession –Decrease in Demand for goods –Decrease in Productivity –Rise in Unemployment Recession Ripple Effect

Depression A prolonged recession that spreads to multiple sectors of our economy –High Unemployment –Low Demand for goods and services –Low Productivity Depression

Recovery –Jobs begin to increase (lower unemployment) –Demand for goods and services increase –Productivity increases Recovery

Which Phase? High employment, increasing wages, more new or expanding businesses Prosperity Consumer demand increases due to lower unemployment Recovery GDP falls for a prolonged period of time due to overwhelming Unemployment Depression Rising Unemployment, unsold goods, falling prices Recession

Ripple Effect The Great Depression was caused by a fall in spending. What does this statement mean?

Ripple Effect In the 1920’s Consumers for the first time could buy houses and cars on an installment plan These purchases created jobs –Building houses and cars –Furniture and appliances to fill houses –Production of steel and other materials for houses/cars –New plants, facilities and equipment Governments built paved roads for the new automobiles and electric plants and water and sewage facilities to service the new households

Ripple Effect The prosperity of workers in all these industries allowed them to spend a lot of money, thus providing income to other workers — income which they in turn spent to buy other goods and services.

Ripple Effect At the end of the 1920’s Business firms slowed their expansion of new plants and machinery If you work in a factory producing machinery… STAND UP – you are now unemployed because companies are spending less on machinery

Ripple Effect At the end of the 1920’s Sales new automobiles began to fall If you work selling cars… STAND UP – you are now unemployed because sales of new cars are down

Ripple Effect Because car sales fall Car dealers cancel orders from car manufacturers Manufacturers lay off employees due to decrease in production If you are an autoworker… STAND UP – you are now unemployed because demand for new car production is down

Ripple Effect Because manufactures slow down production of new cars Auto factories cancel their orders for steel and other raw materials used to make cars If you work as a steel worker STAND UP – you are now unemployed because the demand for steel is down

Ripple Effect At the end of the 1920’s Sales of homes began to fall If you work in Construction STAND UP – you are now unemployed because new house development declines

Ripple Effect Because home sales are down Furniture sales are down If you work in furniture sales STAND UP – you are now unemployed Because furniture sales are down Orders for furniture manufacturing are down If you work in a furniture factory STAND UP – you are now unemployed

Ripple Effect Look at all the unemployed people Those of you still employed… Are you nervous for your jobs? Unemployed people don’t buy new things If you work selling clothes STAND UP – you are now unemployed

Ripple Effect People who are unemployed don’t eat at restaurants If you work in a restaurant STAND UP – you are now unemployed

Ripple Effect Unemployed people don’t buy expensive food items –This means lower profits for grocery stores If you work at a grocery store STAND UP – you are now unemployed due to a decrease in profits

Ripple Effect But bad economic times don’t last forever Goods wear out making it necessary for consumers to buy new goods ex. Cars If you work in car sales SIT DOWN – you are reemployed

Ripple Effect Because more cars are being sold Orders to the manufacturer increase Orders to the steel manufactures increase If you work in car or steel manufacturing SIT DOWN – you are now reemployed

Ripple Effect When more people are employed More new homes are built If you work in construction SIT DOWN – you are now reemployed If you work in furniture sales and production SIT DOWN – you are now reemployed

Ripple Effect When more people are employed More people eat out, buy new clothes, and higher priced groceries If you work at a restaurant, grocery store, or selling clothing SIT DOWN – you are now reemployed

Ripple Effect As purchases of various new products rise business firms expand production and buy new machinery and equipment If you work selling machinery SIT DOWN – you are now reemployed