1. Measuring Health, Unemployment, Inflation
Economic Health
Measuring Health, Unemployment, Inflation

2. 4 Phases of a Business Cycle
Business cycles are made up of major changes in real GDP above or below normal levels.
The business cycle consists of four phases:
Expansion
Peak
Contraction
Trough
Checkpoint Answer: Expansion, peak, contraction, and trough

3. Contractions
There are three types of contractions, each with different characteristics.
A recession is a prolonged economic contraction that generally lasts from 6 to 18 months and is marked by a high unemployment rate.
A depression is a recession that is especially long and severe characterized by high unemployment and low economic output.
Stagflation is a decline in real GDP combined with a rise in price level, or inflation.

4. Business Cycle Forecasting
Checkpoint: Why is it difficult to predict business cycles?
To predict the next phase of a business cycle, forecasters must anticipate movements in real GDP before they occur.
Economists use leading indicators to help them make these predictions.
The stock market is a leading indicator.
Today, the stock market turns sharply downward before a recession.
Checkpoint Answer: Economists must anticipate movements in real GDP before they occur.

5. Unhealthy Economy
When the business cycle is on a downward trending path, typically the economy sees negative side-effects.
Two of those side-effects are inflation and unemployment.

6. Top 10 Movies of All Time (Unadjusted)
1 Avatar $737,266,
2 Titanic $600,788,
3 The Dark Knight $533,345,
4 Star Wars $460,998, ^
5 Shrek 2 $441,226,
6 E.T.: The Extra-Terrestrial $435,110, ^
7 Episode I - The Phantom Menace $431,088,
8 Pirates: Dead Man's Chest $423,315,
9 Spider-Man $403,706,
10 Transformers: Revenge of the Fallen $402,111,

7. Top 20 Movies of All Time (Adjusted for Inflation)
Dalmatians $760,370,300 $144,880, ^
12 The Empire Strikes Back $747,154,600 $290,475, ^
13 Ben-Hur $745,780,000 $74,000,
14 Avatar (#1) $737,266,500 $737,266,
15 Return of the Jedi $715,792,100 $309,306, ^
16 The Sting $678,377,100 $156,000,
17 Raiders of the Lost Ark $670,759,500 $242,374, ^
18 Jurassic Park $656,026,500 $357,067,
19 The Graduate $651,198,300 $104,901, ^
20 Episode I - Phantom Menace (#7) $645,524,400 $431,088,

8. Top 20 Movies of All Time (Adjusted for Inflation)
1 Gone with the Wind $1,537,559,600 $198,676, ^
2 Star Wars (#4) $1,355,490,100 $460,998, ^
3 The Sound of Music $1,083,781,000 $158,671,
4 ET: The Extra-Terrestrial(#6) $1,079,511, $435,110, ^
5 The Ten Commandments $996,910,000 $65,500,
6 Titanic (#2) $976,712, $600,788,
7 Jaws $974,679,800 $260,000,
8 Doctor Zhivago $944,670,800 $111,721,
9 The Exorcist $841,427, $232,671, ^
10 Snow White & the Seven Dwarfs $829,490,000 $184,925, ^

9. What is Inflation? Inflation is rising general level of prices
Inflation reduces the “purchasing power” of money
Examples:
It takes $2 to buy what $1 bought in 1982
It takes $6 to buy what $1 bought in 1961
When inflation occurs, each dollar of income will buy fewer goods than before.

10. How is Inflation measured?
The government tracks the prices of the same goods and services each year.
This “market basket” is made up of about 300 commonly purchased goods
The Inflation Rate - % change in prices in 1 year
They also compare changes in prices to a given base year
(usually 1982)
Prices of subsequent years are then expressed as a percentage of the base year
Examples:
2005 inflation rate was 3.4%
U.S. prices have increase 98.3% since 1982 (base year).
The inflation rate in Bolivia in 1985 was 50,000%
This is called Hyperinflation
A $25 meal today would cost $12,525 a year later

11. Causes of Inflation The Quantity Theory
The quantity theory of inflation states that too much money in the economy leads to inflation.
Too much money in the system causes purchasing power boom, thus leading to price increases (inflation!).

12. Causes of Inflation “Too much money spent chasing too few goods.”
Caused by a decrease in unemployment.
The Demand-Pull Theory
Changes to aggregate demand can cause inflation to occur when demand for goods and services exceeds existing supplies.

13. Causes of Inflation The Cost-Push Theory
According to the cost-push theory, inflation occurs when producers raise prices in order to meet increased costs, or changes in aggregate supply.
Cost-push inflation can lead to a wage-price spiral — the process by which rising wages cause higher prices, and higher prices cause higher wages.

14. Effects of Inflation
High inflation is a major economic problem, especially when inflation rates change greatly from year to year.
Purchasing Power
In an inflationary economy, a dollar loses value. It will not buy the same amount of goods that it did in years past.
Interest Rates
When a bank's interest rate matches the inflation rate, savers break even. When a bank's interest rate is lower than the inflation rate, savers lose money.
Income
If wage increases match the inflation rate, a worker's real income stays the same. If income is fixed income, or income that does not increase even when prices go up, the economic effects of inflation can be harmful.

15. Exit Question -
What effects does inflation have on an economy, on individuals, and on businesses?
Are these issues always harmful? Explain.
How can inflation be prevented?

16. Hurt by Inflation Helped by Inflation
Lenders-People who lend money (at fixed interest rates)
People with fixed incomes
Savers
Debtors-People who borrow money
A business where the price of the product increases faster than the price of resources