1. Fun Facts- The Lion King  Simba means “lion”  Mufasa means “King”  Scar’s original name is Taka which means “trash”- he changed his name after getting his scar  The two brothers were literally named “King” and “Trash”  Pumbaa means “simpleton or stupid”

2. The Business Cycle and Economic Growth Unit V: Macroeconomics Lesson 4

3. Business Cycle  The business cycle is a period of macroeconomic expansion, followed by one of macroeconomic contraction  All market-oriented economies will go through these cycles  Economists want to make sure expansion periods stay long and contraction periods stay short

4. Importance of GDP  GDP is the dollar value of all final goods and services produced within a country’s borders in a given year  GDP measures how well a nation’s economy is doing for a particular year  A high GDP means that the nation is doing well (expanding)  A low GDP means that the nation is doing poorly (contracting)

5. Phases of a Business Cycle  Business cycles are made up of four major changes in real GDP above or below normal levels  Expansion  Peak  Contraction  Trough

7. Expansion  Expansion is a period of economic growth  A steady, long-term rise in real GDP  Also known as recovery when the economy is coming out of bad times  Businesses increase production, new workers are hired, consumer spending increases  Unemployment falling, inflation rising

8. Peak  The peak is the highest point in the business cycle  The economy is booming  People and businesses have money to spend  Demand is high, prices are increasing  Unemployment is low, inflation is high  The economy is being overworked

9. Contraction  Contraction is a period where the economy is falling  Real GDP begins to fall  Consumers begin to spend less, businesses lay off workers, production is cut, investment in new buildings slows  Unemployment is rising, inflation is getting lower

10. Contractions  If real GDP falls for at least six straight months the economy is in a recession  Generally last 6 to 18 months  A very long and severe recession is called a depression  Stagflation is an economy that is not growing, but which has rising prices  Real GDP drops and prices rise (inflation)

11. Trough  The trough is the lowest point in the business cycle  The economy is struggling and GDP has hit its low point  Production is at its lowest, demand is very low, many businesses fail, jobs are hard to find  Unemployment is very high, inflation is low

12. The US Business Cycle 1920-2010

13. Business Cycle Causes  There are many different factors that can set the Business Cycle moving in a new direction  There are four main economic factors that typically cause this:  Business investments  Interest rates and credit  Consumer expectations  External shocks

14. Business Investment  When the economy is expanding, business investment increases, which in turn increases GDP and helps maintain the expansion  When firms decide to decrease spending, the result is a decrease in GDP and the price level

15. Interest Rates and Credit  If the interest rates on credit increase:  Consumers are less likely to make large purchases  Businesses may be hesitant to make large investments

16. Consumer Expectations  If people expect that the economy is going to start to contract, they may reduce spending (GDP down)  High consumer confidence, though, will lead to people buying more goods (GDP up)

17. External Shocks  External shock: An event that produces a significant change within an economy, despite occurring outside of it  Positive: discovery of new oil- GDP goes up  Negative: war in a country we do business with, GDP down

18. Predicting the Business Cycle  Economists are constantly trying to predict the business cycle  Economists use leading indicators- a set of key economic variables that economists uses to predict business cycles  Examples: The stock market, interest rates, manufacturer’s new orders of capital goods  They are not always right!

19. The Great Depression

20. The Roaring 20’s Large amounts of money A lot of partying Bootleggers People living well off

21. October 29, 1929

22. Recession : Decline for 2 straight quarters Depression : A very long and severe recession (10 years)

23. The Great Depression

24. More jobs are being created by the New Deal. WWII has increased the amount of production

25. Later Recessions  OPEC Embargo  In the 1970s, the United States experienced an external shock when the price of gasoline and heating fuels skyrocketed as a result of the OPEC embargo on oil shipped to the United States  The U.S. economy also experienced a recession in the early 1980s and another brief one in 1991, followed by a period of steady economic growth  The attacks of 9/11 led to another sharp drop in consumer spending in many service industries

26. Later Recessions  The U.S. was in a recession from Dec. 2007 (when economic activity peaked), based on a number of measures including job losses, declines in personal income, and declines in real GDP. It ended in June 2009  Since that trough in 2009, the economy has been growing slowly. By May 2013 the stock market was hitting record highs and housing and employment markets have been improving. no peak is in sight.

27. Economic Growth

28.  Economic growth is an increase in real GDP from one year to the next  Increase in real GDP per capita may be more useful  It takes into account the increase in population as well

29. How does the Economy Grow?  The economy will grow through:  An increase in capital deepening  A higher savings rate  A population that grows along with capital growth  Government intervention  Technological progress

30. Capital Deepening  Capital deepening: the process of increasing the amount of capital per worker  A nation with a large amount of physical capital will experience economic growth

31. Saving and Investment  If people save more money, they will have more to possibly invest in businesses  If invested, these funds can be used by businesses to expand their amount of capital

32. Population Growth  If a nation experiences low population growth and a high rate of expanding capital significant capital deepening will occur  If the population grows while the supply of capital remains constant, the amount of capital per worker will shrink- the opposite of capital deepening  This process leads to lower standards of living

33. Government Intervention  If the government raises taxes, households will have less money. People will reduce saving, thus reducing the money available to businesses for investment  However, if government invests the extra tax revenues in public goods, like infrastructure, this will increase investment, resulting in capital deepening

34. Technological Progress  Technological progress is an increase in efficiency gained by producing more output without using more inputs  Causes of technological progress include:  Scientific research  Innovation  New products increase output and boost GDP and profits  Scale of the market  Larger markets provide more incentives for innovation  Education and experience  Increases in human capital  Natural resources  Increased use of natural resources can create a need for new technology