Unit 1.04 The Business Cycle Measuring Economic Activity

The business cycle Recurrent periods during which the nation’s economy moves in and out of recession and recovery phases Major ups and downs of economy Short Term (2-3 years) Long Term (50-60 years)

Bull market Peaks Growing economy Increasing investor confidence Anticipation of future price increases

Bear market Troughs General decline in the stock market over a period of time Transition from high investor optimism to widespread investor fear and pessimism price decline of 20% or more over at least a two-month period sometimes referred to as "The Heifer Market"

prosperity A phase of the business cycle where most people who want to work are working and businesses produce goods & services in record numbers. Economic Growth 1945-1973 $200B in war bonds matured GI Bill financed well-educated work force Middle class swelled Increase in GDP and Productivity

recession A period where demand begins to decline, businesses lower production of goods & services, unemployment begins to rise, and GDP growth slows for several quarters Reduced Economic Activity GDP negative for 2 or more quarters 1.5% rise in Unemployment in 12 months Late 2000s Collapse of the housing market Bank failures High Unemployment Low Consumer Confidence Escalating Debt Inflation Rising gas and food prices

depression A phase marked by high unemployment, weak sales of goods & services, and business failures Sustained, long-term economic downturn Large increases in Unemployment Reduced credit availability Large number of bankruptcies Deflation Bank failures

The great depression 1929 – late 1930s Stock Market Crash October 29th “Black Tuesday” Massive Bank Failures Millions lost jobs Global in scale Economic Indicators United States Great Britain France Germany Industrial Production -46% -23% -24% -41% Wholesale Prices -32% -33% -34% -29% Foreign Trade -70% -60% -54% -61% Unemployment +607% +129% +214% +232%

What phase is the US in now? recovery A phase of the business cycle in which unemployment begins to decrease, demand for goods & services increases, and GDP begins to rise again High levels of growth following a Recession Government stimulus packages What phase is the US in now?

Economic indicators Gross Domestic Product (GDP) Inflation Consumer Price Index (CPI) Productivity Unemployment Debt Consumer Confidence

Gross domestic product The total value of all final goods & services produced in a country in one year GDP = private consumption + gross investment + government spending +(exports – imports) Often reflects a country’s Standard of living

Strength of US economy to other countries Top 10 largest world economies Trading Economics Gross Domestic Product in $ trillion World Rank Country GDP 1 United States 17.418 2 China 10.380 3 Japan 4.616 4 Germany 3.859 5 United Kingdom 2.945 6 France 2.846 7 Brazil 2.353 8 Italy 2.147 9 India 2.049 10 Russia 1.857

An increase in the general price level Inflation An increase in the general price level When prices increase, each unit of currency buys fewer goods & services Caused by excessive growth of the money supply

Consumer price index Shows change in the average prices of goods & services bought by consumers over a period of time Related to inflation Shows how much your money can buy

The quantity of a good an average worker produces in an hour productivity The quantity of a good an average worker produces in an hour Measure of output from a production process GDP per hour worked

unemployment State of being without paid work, though willing and able to work and actively seeking work Proportion of labor force that is without paid work 09/2015 5.1%

debt money borrowed by the federal government of the US at any one time through the issue of securities by the Treasury and other federal government agencies Deficit – the difference between the total amount spent by Congress and the amount received by the IRS Was $17.7T last year, this year it’s $18.4 TRILLION US National Debt Clock Surplus – revenues exceed spending Balanced Budget – revenues = spending President Clinton, 1998-2001 ?