1. Factors Affecting the U.S. Economy

2. The Business Cycle
Business cycle reflects changes in economic activity
A series of upturns and downturns
Four Stages:
1. Expansion- economy grows
2. Peak- economy is at its strongest
3. Contraction/Recession- economy starts to slow down (extended periods are called depressions)
4. Trough- demand, production, employment are at their lowest levels
After exiting the trough, the economy will start to expand again and start the cycle all over

3. The Business Cycle

4. Influences on the Business Cycle
Business Investment
High levels of business investment promote economic growth in 3 ways:
Purchase new capital goods = adding to the demand for such goods
Investment in new goods = greater efficiency = lower production costs
Investment can be used for research and development
New technologies that increase production and lower cost
Bottom Line: high levels of business investment can help the economy grow

5. Influences on the Business Cycle
Money & Credit
Available money/credit to individuals or businesses is affected greatly by interest rates
Individuals and businesses borrow money when interest rates are low
Makes it easier and cheaper to repay loans
Many individuals and businesses will not borrow money when interest rates are high
Less money being borrowed for investments

6. Influences on the Business Cycle
Public Opinion
Consumers spend money based on their perceptions of the state of the economy
Expectations of businesses also affect the economy
Their perceptions affect how much money they will borrow and/or invest
Changes in the global economy can also impact the U.S. business cycle
Prices for imported goods we depend on can profoundly affect our economy (i.e. gas)
In some periods of U.S. history, war has contributed to economic expansion
Military spending and increased demand/production for goods = increased demand for labor

7. Predicting the Business Cycle
Predicting changes in the business cycle is a critical job
Helps businesses decide if it is a good time to borrow and/or invest
Helps governments determine how much money they should spend or expect to make in revenue
Three factors:
Leading
Coincident
Lagging

8. Predicting the Business Cycle
Leading Indicators
Help economists make predictions about future growth
Examples:
Building permits issued
Stock prices
Business orders for consumer goods

9. Predicting the Business Cycle
Coincident Indicators
Show economists how the economy is doing at the present time
Tell if an upturn or downturn has begun
Examples:
Personal incomes rising or declining
Amount of goods being bought
Amount of goods being produced

10. Predicting the Business Cycle
Lagging Indicators
Indicators that surface well after an upturn or downturn has start
Helps economists determine how long the current phase may last or what caused that phase in the first place

11. Human and Capital Resources
Availability, location, and movement of human and capital resources affects U.S. economy
Many American businesses have outsourced their labor to foreign countries, where they can pay workers less and therefore lower their production costs
Hundreds of thousands of immigrants also come to the U.S. seeking work
U.S. will grant green cards to people who can perform highly-skilled jobs that will benefit the U.S. economy
Gives these immigrants “permanent resident” status

12. Current Events & The Economy
War, extreme weather, other catastrophic, unforeseen events can also have huge effects on the economy
No formula or prediction can prepare economists, consumers, or producers for these types of events

13. ? List and briefly describe the four stages of the business cycle
Explain how business investment, money & credit, and public opinion all affect the business cycle.
Explain the difference between leading, coincident, and lagging economic indicators.
What other resources affect the U.S. economy?
What can economists, consumers, and producers not predict or prepare for?