1. Section 2-2 Open your books and 7 th Period Assignmnents The Business Cycle: Four Phases Consumer Prices/Interest Rates

2. The Business Cycle All nations experience good and bad times The recurring ups and downs of GDP determine how the economy is doing Four phases of the business cycle: prosperity, recession, depression, and recovery

3. Prosperity The peak of the business cycle Most people who want to work can Demand for goods and services is high GDP is high, resulting in the high point of the business cycle

4. Recession Demand for goods and services decreases GDP slows and businesses lower production Some may last one quarter or more than three years Our economy is experiencing this right now

5. Depression Prolonged recession deepens and spreads throughout entire economy Marked by high unemployment, weak demand and many business failures GDP falls rapidly Great Depression (1930-1940) 25% unemployment

6. Governments try to stimulate the economy during recessions and depressions (ARRA) American Reinvestment and Recovery Act (TVA) Tennessee Valley Authority Used as an attempt to stimulate the economy

7. Recovery Light at the end of the tunnel Unemployment begins to decrease, demand for goods and services increase, GDP begins to rise again As Recovery continues, the nation moves toward Prosperity

8. Or Depression Or Recovery ( Prosperity)

9. What are the 4 stages in order? What stage are we in right now with our economy?

10. In a group of 2, which I will choose, Label and describe the four phases of the business cycle On your poster(I WILL PROVIDE) draw the phases of the business cycle For each phase right three bullet points describing the phase

11. Example: Prosperity -High GDP -High Demand for Goods and Services -Most People Who Want a Job Can Find One

12. Consumer Prices Inflation- Increase in the general level of prices over time Cost of goods increase over time, meaning the value of your dollar goes down over time Most harmful to people living on a fixed income Movie Ticket Prices Year 2000Year 2011 $5.00$8.50

13. Consumer Prices Causes of Inflation: Demand for goods and services is greater than the supply Measuring inflation Consumer Price Index- a basket of over 400 goods and services that are measured every month. Staples of our society- gas, milk, bread, average new car price……

14. Consumer Prices Deflation-opposite of inflation, value of your dollar goes up. Not something that is good, happening during times of recession Year 2000TicketYear 2011 $5.00$4.95 Hyperinflation- Inflation increases very rapidly, making your dollar worthless Year 2000TicketYear 2011 $5.00$500 million

15. Interest Rates Interest Rates= Cost to borrow money High interest rates= Higher business costs, harder to borrow money Low interest rates= Lower business costs, easier to obtain and spend money

16. Credit Ratings FICO score What is it? People with high credit scores receive lower interest rates- Why? People with low credit scores receive high interest rates- higher risk

17. Types of Interest Rates Prime Rate- rate banks make available to their best customers, lowest risk T-Bill Rate- yield on short term (13 week) U.S. Government debt Treasury Bond Rate- yield on long term (20 week) govt. debt Mortgage Rate- amount individuals pay to borrow for the purchase of a new home. Certificate of Deposit- rate for six-month time deposits at savings institutions

18. Interest Rates Rates change daily Supply and demand are the major factor in determining whether rates increase When borrowing increases rates will increase When borrowing decreases rates will decrease Our economy right now- very low interest rates, economy is very slow, no jobs are being created so not much money is being borrowed

19. How is interest calculated? Simple Interest= I= P x R x T I=Interest P=Principal or money borrowed or invested R=Rate of return (as a percentage) T= Amount of time a loan or investment is for

20. Sample Problem Bob wants to buy a car that costs $10,000. He doesn’t have any of the principal ($10,000) so he will need to borrow the full amount. A bank decides to loan him the money, at a cost. They will give him $10,000 but not for free. They will give the money and he must repay the principal plus interest over the life of the loan. The interest Rate is 5% (expressed as.05) in the equation and the Time 5 years. How would you calculate the amount of interest Bob will need to pay? I=P x R x T I= ($10,000) x (.05) x (5) = $2500

21. Sample # 2 Tom wants to buy a house. He needs to take out a loan for $100,000. He will receive an interest rate of 5% from the bank over a 30 year period. How would you set up the equation? Remember I= P x R x T How much interest will he pay? I= $100,000 x.05 x 30 I= $150,000

22. Sample #3 Jill wants to save some money in a savings account at her local bank. She has $1000 to put in the bank. Does she want a high or low interest rate? When investing you want a high rate, when taking out loans you want a low rate She will put a $1000 in the bank. The bank will give her a 1% return on her money if she keeps it in there a minimum of 1 year. What is the interest earned? I= P x R x T I= $1000 x.01 x 1 I=$10