1. WARM UP #9 What does it mean for an event to be cyclical? What are some examples? What do they all have in common? When you go to the doctor, what are some of the vital signs that he/she may check to determine your health?

2. ECONOMIC INDICATORS & THE BUSINESS CYCLE

3. ECONOMIC INDICATORS Just like we have vital signs to determine our health, so does the economy. Economic Indicators are statistics that describe the current performance of the economy.  Economist use these to try to predict the market in order to make smart business decisions.

4. 3 MOST IMPORTANT ECONOMIC INDICATORS 1.GDP (Gross Domestic Product) 2.Inflation Rate 3.Unemployment Rate What else can you think of?

5. GROSS DOMESTIC PRODUCT Gross Domestic Product : total market value of all goods and services produced in one year  Best indicator for a how an economy is doing.  REAL GDP : has been adjusted for inflation  Changes in REAL GDP reflects changes in quantities of goods and services produced.  Nominal GDP: has NOT been adjusted for inflation  Real GDP per Capita: GDP/population(determines the Real GDP per person).

6. 2011 U.S. Economy produced 2 million pizzas 10 million sodas 15 million bread sticks 2012 U.S. Economy produced 1 million pizzas 12 million sodas 20 million bread sticks Which year did the U.S. produce more?

7. 2011 GDP ItemProductionPriceValue Pizza2 million$10$20 million Soda10 million$1$10 million Breadsticks15 million$5$75 million Total$105 million 2012 GDP ItemProductionPriceValue Pizza1 million$10$10 million Soda12 million$1$12 million Breadsticks20 million$5$100 million Total$122 million

9. HOW IS GDP CALCULATED? Totaling up :  consumption spending  investment spending  government purchase of goods & services  net exports (export spending- import spending)

10. WHAT DO THE CHANGES REPRESENT? Increase Means More output in U.S., more “product” (goods & services) produced; living standards may be higher. Decrease means Less output in U.S., less “product” (goods & services) produced; living standards may be lower; potential for recession.

11. http://www.economist. com/blogs/dailychart/2 011/01/comparing_us_ states_countries

13. INFLATION RATE % of change in average level of prices of goods and services purchased by the typical household. Inflation: rise in the average prices of all goods and services Deflation: decrease in the average prices of all goods and services

14. The Consumer Price Index (CPI) is the most widely reported measure of the overall price level.  CPI: compares prices of a fixed set of commonly purchased goods (called a market basket) to the prices of those same goods and services from a previous month or year. Any increase in the overall market basket price= inflation. Example: CPI in Nov. 2005 was $199.20 CPI in Nov. 2006 was $201.70 [(201.7-199.2)/199.2] X 100= [2.5/199.2] x 100 = 1.3%

16. WARM UP #10 1.What does GDP tell us about our economy? 2.Once a bill is assigned to a committee there are several options that can happen to that bill. It can be revised, passed, killed, tabled or pigeonholed. What does pigeonholing a bill mean? 3.What is the purpose of a conference committee?

17. UNEMPLOYMENT RATE The % of the U.S. labor force that is unemployed. To qualify as unemployed:  16 years old+  actively looking for a job, but cannot find one  those who CHOOSE not to work, students, stay at home parents, retirees, or those who have given up looking for a job are not a part of the labor force, and are not calculated in the unemployment rate

18. TYPES OF UNEMPLOYMENT 1.Frictional: temporary, people looking for a better job, just entered the labor force(graduated college), normal job search process 2.Structural: results from shifts in demand for goods & services, some jobs in certain sectors of economy are eliminated (outdated, outsourced). 1.People who are structurally unemployed may not have the skills needed for new types of jobs and may face prolonged periods of unemployment. Very bad. 3.Cyclical: Result from general downturn in economy. This can impact many different industries. 1.During a recession this type of unemployment is high. 4. Seasonal: temporary unemployment due to seasonal conditions. (ski slopes close during summer)

19. BUSINESS CYCLE  the fluctuation in economic activity that an economy experiences over a period of time.  Typically measured in Real GDP

20. PHASES OF THE BUSINESS CYCLE 1.Expansion/Recovery  Real GDP (production) increases  Unemployment rate declines  Improved feelings=more purchases 2.Peak  Highest point of expansion/production  Rising prices/wages  Low unemployment  only measure once contraction begins 3. Contraction/ Recession  Decrease in Real GDP  Decreased prices= decreased jobs  Increased unemployment  Pessimism 4. Trough  Lowest point  only measure once expansion begins. Recession ‐ Real GDP (production) decreases for 6 consecutive months (2 quarters) Depression- An extended recession (8 quarters/2 years

22. WHY DOES A RECESSION HAPPEN?  Driven by production and demand  OVER PRODUCTION and NOT ENOUGH DEMAND

23. RECESSION DOMINO EFFECT Peak ProductionFalling DemandFalling ProductionLoss of Jobs Falling Demand

24. RECOVER DOMINO EFFECT Rising Demand Increased Production Increased Hiring Rising Demand

25. YouTube: 2008 Recession