6.02 Understand economic indicators to recognize economic trends and conditions E Determine the impact of business cycles on business activities Understand economics trends and communication.

Define 6.04-E Define 6.04-E Business Cycles: The ups and downs in economic activity. ◦ Business fluctuations ◦ Periods of expansion & contraction in economic activities  Production, consumption, exchange, and distribution ◦ They affect all aspects of our economy  Employment, prices, incomes, & production

Define 6.04-E Define 6.04-E Expansion (Recovery): ◦ The growth part of the cycle Peak (Prosperity): ◦ The high point of the cycle Contraction (Recession): ◦ The decline part of the cycle Trough (Depression): ◦ The final and lowest part of the cycle

6.02-E Business Cycle Identify the phases of a business cycle. ◦ Peak, Trough, Expansion, Contraction Describe the expansion phase of a business cycle. ◦ Economic growth ◦ Consumer spending increases (Demand) ◦ Production increases (Supply) ◦ Moderate business expansion (hiring more employees & new equipment) ◦ Interest rates decrease

6.02-E Business Cycle Describe the peak phase of a business cycle. ◦ Demand exceeds production. ◦ High consumer spending. ◦ Production is high. ◦ Prices increases due to high demand. ◦ Interest rates begin to rise ◦ Consumers begin to save more; decrease in spending ◦ Economic activities level off.

6.02-E Business Cycle 6.02-E Business Cycle Describe the contraction phase of a business cycle. ◦ Demand decreases; reduced consumer spending ◦ Production decreases; reduced supply ◦ Unemployment increases ◦ Businesses fail which further intensifies the loss of jobs ◦ Prices decrease ◦ Interest rates decrease ◦ 6 months long-recession, severe-depression

6.02-E Business Cycle Describe the trough phase of a business cycle. ◦ Final phase of the cycle ◦ Economic activities stop their decline ◦ The low point of the economic activity ◦ Unemployment very high ◦ Poverty ◦ Failing businesses ◦ Bankruptcies increase

6.02-E Business Cycle Explain how knowledge of business cycles benefits businesspeople. ◦ Businesspeople can take steps to avoid the extreme ups and downs of the cycle by anticipating changes needed in employment, production, pricing, and purchasing. ◦ Economists examine fluctuations in the level of an economy’s total output.  Total output is based on real GDP  Real GDP is GDP that has been adjusted for inflation.  As a country’s real GDP increases, economic activities increase; the economy grows.  As a country’s real GDP decreases, economic activities decrease; the economy declines.

6.02-E Business Cycle Explain how knowledge of business cycles benefits businesspeople. ◦ Unpredictability of business cycles  Difficult to predict the beginning and end of cycles.  Heightens the uncertainty of producers & consumers  No set length or severity of a business cycle  Some have lasted 2 yeats, others 10 years ◦ Benefits of growing economy  Provides a higher standard of living  Creates new and additional jobs  Enables the government to fulfill its duties better  Resolves domestic problems

6.02-E Business Cycle Describe internal causes of business cycles. ◦ Aggregate Demand ◦ Money Supply ◦ Investment in Capital ◦ Inventory Levels Let’s look more closely at these internal causes.

6.02-E Business Cycle ◦ Describe internal causes of business cycles. ◦ Aggregate Demand: total demand for an economy’s goods and services and can pull GDP up or down to cause business cycles.  Decreasing: production and employment decrease, recession or depression result if lasts long time.  Rising: businesses increase production, workers are hired, employees earn more to increase spending.  Prices will increase if production can’t meet demand; inflation

6.02-E Business Cycle ◦ Money Supply  The total quantity of money that exists at one time in a nation. As the money supply goes up and down so does its economy. The government restricts the flow of money by raising taxes, interest rates, and purchasing fewer goods & services.  Money Increases when the Federal government spends more, lowers interest rates, & lowers taxes. When interest rates are low more money can be borrowed to by homes, office buildings, and industrial plans. This increases production which lowers unemployment rate resulting in shifting back into the expansion phase.  Money Decreases when unemployment is high, business activities slow down, and the contraction phase begins.

6.02-E Business Cycle Investment in capital goods When producer lack confidence in the economic condition, they decrease their investment in capital goods & economic activities reduce. This encourages the contraction of economic activities. When producer are confident in the economic condition, they buy new equipment and build or expand their businesses. This investment encourages the expansion of economic activities.

6.02-E Business Cycle Inventory levels ◦ When producer are confident about the economy, they increase their inventories.  To prepare for demand  Increasing economic activities (Expansion) ◦ When producer lack confidence in the economy, they shrink their inventories.  Sell their reserved back stock  Reducing economic activities(Contraction)

6.02-E Business Cycle Explain external causes of business cycles. ◦ Political Changes ◦ Climatic Changes ◦ International relations ◦ Discoveries and innovations ◦ Let’s take a closer look at these external causes!

6.02-E Business Cycle Explain external causes of business cycles. ◦ Political Changes: Political Parties control economic activity; thus changes in the parties changes control of the economic activity. Political parties that support your business interest will more likely result in expansion. Economies with turbulent governments are hotbeds for revolution and could result in business loosing their entire investment resulting in contraction of economic activities. ◦ Climatic Changes: Climate impact many jobs. Extreme weather such as droughts, floods, or blizzards, have a negative affect on economic activities.

6.02-E Business Cycle Explain external causes of business cycles. ◦ International relations: Relationships with other countries can expand or contract our economy. For example:  Expand: War/conflicts expand defense spending  Contract: End of War/conflicts reduces defense spending. ◦ Discoveries and innovations: New products, techniques, resources increase economic activities. Large amounts of money are invested for research and development of new products resulting in expansion. Conversely no investment – contraction.