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The Downward Spiral.

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Presentation on theme: "The Downward Spiral."— Presentation transcript:

1 The Downward Spiral

2 What happens when increase in the Rate of Production is greater than the Standard of Living:

3 Standard of Living The quality and quantity of goods and services available to people Your standard of living includes: How much money you make Type of car you drive Size of your house Leisure activities Increases each year Rate of Production = rate at which items are produced

4 Rate of Production The increase in the Rate of Production cannot exceed the increase in the Standard of Living Let’s see what happens if it does: Let’s pretend that the increase in the Rate of Production is 5% and the increase in the Standard of Living is 2%

5 Widgets R Us Widgets R Us makes widgets

6 Widgets R Us Let’s say that Widgets R Us makes 1000 gears a year
In year one they produce 1000 gears How many will they produce in year 2? 1050 How did we arrive to this number? There is a 5% increase in the rate of production each year

7 (this is because the increase has not started yet)
Widgets R Us If 1000 widgets are produced in year 1, how many will be sold in year 1? 1000 (this is because the increase has not started yet) If the standard of living increase is 2%, how many gears can Widgets R Us expect to sell in year 2? 1020

8 Let’s see what happens Year Produced Sold Surplus 1 1000 2 1050 1020
2 1050 1020 30 3 1102 1040 62 4 1157 1060 97 5 1207 1081 126 6 1267 165 7 1330 1124 206 8 1396 1146 250 9 1465 1168 297 10 1538 1191 347

9 Widgets R Us As you can see, the increased surplus will result in lower production The lower production results in layoffs Layoffs result in an economic downward spiral

10 Downward Spiral People become unemployed Companies fire workers
People don’t buy luxury items


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