1. The Business Cycle

2. The Business
Cycle

3. Business Cycle
Covers periods of alternating economic growth and recession (or negative economic growth)
It is measured by changes in the real GDP
Real words: ups and downs of the economy

4. Fluctuations in Business Cycle
Occurs over time
Results b/c of changes in economic growth and consumption patterns
Economists look at the business cycle to hopefully see where the economy going in the future

6. Real GDP
Time

7. Dynamics of the Business Cycle
-causes of fluctuations are varied
Expansion period: when consumer spending increases and production increases

8. The Prosperity Cycle HIGHER AGGREGATE DEMAND INCREASED PRODUCTION
GREATER LEVELS OF EMPLOYMENT
INCREASED INCOME
INCREASED CONSUMPTION
HIGHER AGGREGATE DEMAND

9. Eventually the economy will peak and then trend will begin to reverse
Why? -Consumers may have simply exhausted purchasing patterns that pushed up aggregate demand
-wants are satisfied
-an event like market crash
-an increase in producers who are competing for capital funds to support business expansion trends to put pressure on interest rates (interest rates increase, consumers less likely to buy)
-as prices rise higher inflation begins to occur and consumers income decreases

10. Recession
Decreased incomes can lead to decrease in consumer demand for goods and services ->shifts aggregate demand to left
Revenue of firms will tend to decline
Firms may be forced to cut back production in order to control costs; lay off workers or go out of business (downward spiral)
This called recessionary trend
DEF: when real GDP growth is negative or declines for 2 consecutive quarters (2 -3 month periods)
Characterized by increasing levels of real GDP growth, and low levels of inflation or even falling prices (deflation)

11. Depression
Happens if recessionary period is prolonged by aggregate demand, with very high unemployment and very low output levels
Eventually it will fall enough that consumers will begin to spend again and it will begin to rise

12. And now time for Mr Clifford!

13. The national economy goes up and down like a roller coaster over time
The Business Cycle
The national economy goes up and down like a roller coaster over time
Real GDP
Inflation
Unemployment
Peak
Real GDP
Trough
Full Employment
Recession
(Contraction)
Recovery
(Expansion)
Time
A recession is 6 month period of decline in Real GDP. (If really bad…then depression)
Copyright
ACDC Leadership 2015