1. Effects of Business Decisions and investments
UNIT VI – Fundamental of Economics

2. Draw Diagram Money goes to the left, goods/services to the right
Foreign Sector
Product Market
Government Sector
Business Sector
Consumer Sector
Factor Market

3. Components of Circular Flow
Product Market
Factor Market
Where goods and services are sold by businesses
Where consumers purchase goods and services
Where the factors of production (especially labor) are sold by consumers
Where the factors are bought by businesses

4. Components of Circular Flow
Consumer Sector
Business Sector
Households, represents the people who purchase goods and services and sell labor
Represents businesses that sell goods and services and purchase labor and resources

5. Components of Circular Flow
Government Sector
Foreign Sector
Includes our interaction and trading with other countries
Effects our level of economic interdependence – how much one country depends on another
Because we have a mixed economy, the government plays a role
They interact with the businesses and consumers by buying and selling goods, services, and resources along with collecting taxes

6. Effects on the Economy
All of the decisions made by businesses, consumers, and the government effect the overall economy
The economy naturally goes through ups and downs
All three groups, especially the government, work to try to improve the good times and pull out of the bad times

7. How do we know if the economy is good or bad?
Multiple factors to look at
GDP – Gross Domestic Product, how much a country produces in a year
Per Capita GDP – How much a country makes per person
Standard of Living – income of people, health care, education, quality of housing, etc.
Price Indexes – show inflation rates and costs of goods and resources
National Debt
Stock Market

8. CONTRACTION/ RECESSION
Draw Diagram
PEAK
PROSPERITY/ BOOM
GDP
EXPANSION
CONTRACTION/ RECESSION
RECOVERY
TROUGH
TIME

9. Components of The Business Cycle
Contraction
Expansion
A downward turn in the GDP
Country is losing money; economy is deteriorating
Recession is a shorter contraction; depression is longer
An upward turn in the GDP
Country is making money; economy is improving
Two levels of expansion

10. Components of The Business Cycle
Recovery
Prosperity/Boom
Economy is improving back to where it was in the previous business cycle
Getting back to where it used to be
Economy is growing beyond it’s previous state
Things are better than they were in the past

11. Components of The Business Cycle
Trough
Peak
Lowest point of the business cycle
Point in which a recession turns into recovery
Highest point of the business cycle
Point in which an expansion turns into a contraction