1. Section 1 Business Cycles: Characteristics and Causes (cont.) Phases of the business cycle –RecessionRecession Begins when the economy reaches a peakpeak Ends when the economy reaches a troughtrough Business Cycles

2. Section 1 Business Cycles: Characteristics and Causes (cont.) –ExpansionExpansion Begins after the declining real GDP bottoms out Continues until economy reaches a new peak

3. Section 1 Business Cycles: Characteristics and Causes (cont.) The economy would follow a steady growth path, trend line, if periods of recession and expansion did not occur.trend line Severe recessions can turn into a depression. depression

4. Section 1 Business Cycles: Characteristics and Causes (cont.) Causes of business cycles –Changes in capital expenditures –Innovation and imitation –Monetary policy decisions –External shocks

5. Section 2 Inflation Inflation—increase in the general level of pricesInflation Deflation—decline in the general level of pricesDeflation Both are harmful to the economy and should be avoided whenever possible.

6. Section 2 Measuring Prices and Inflation (cont.) Inflationary changes –Creeping inflationCreeping inflation –HyperinflationHyperinflation –StagflationStagflation

7. Section 2 Causes for inflation –Demand-pull inflationDemand-pull inflation –Cost-push inflationCost-push inflation –Wage-price spiral –Excessive monetary growth Causes of Inflation (cont.) Profiles in Economics: Milton Friedman

8. A.A B.B C.C D.D Section 2 When the price level goes up, the purchasing power of the dollar goes A.Up B.Down C.Remains the same D.Depends

9. Section 2 Effects of inflation –Reduced purchasing power –Distorted spending patterns Consequences of Inflation (cont.) The Purchasing Power of the Dollar

10. Section 2 –Encourages speculation –Distorted distribution of income Consequences of Inflation (cont.) Creditors are hurt more than debtors generally.Creditorsdebtors

11. A.A B.B C.C D.D Section 2 Which sector of the economy has seen recent years of speculation? A.Real estate B.Gold C.Oil D.Alternative fuel

12. A.A B.B Section 3 When the government issues that latest monthly unemployment statistic, is it accounting for all individuals who are unemployed? A.Yes B.No

13. Section 3 Measuring Unemployment (cont.) The civilian labor force or labor force is the sum of all persons aged 16 and above who are either employed or actively seeking employment.civilian labor forcelabor force Unemployed—individuals who are willing, able, and available to work and actively seeking employmentUnemployed

14. Section 3 Measuring Unemployment (cont.) The unemployment rate is equal to the number of unemployed persons divided by the civilian labor force.unemployment rate The Unemployment Rate

15. A.A B.B C.C D.D Section 3 Unemployment rate does not include A.Labor force dropouts B.Prisoners C.Military D.All of the above

16. Section 3 Sources of Unemployment (cont.) Kinds of unemployment –Frictional unemploymentFrictional unemployment –Structural unemploymentStructural unemployment Outsourcing

17. Section 3 Sources of Unemployment (cont.) –Technological unemploymentTechnological unemployment –Cyclical unemploymentCyclical unemployment –Seasonal unemploymentSeasonal unemployment

18. A.A B.B C.C D.D Section 3 Which type of unemployment exists when consumers change from buying tapes and cassettes to DVDs and iPods? A.Frictional B.Technological C.Structural D.Seasonal

19. Section 3 Recession, inflation, and unemployment hinder economic growth and have human costs. Cost of unemployment and economic instability Costs of Instability (cont.) –Opportunity cost like the GDP gapGDP gap

20. Section 3 –Misery index or discomfort indexMisery indexdiscomfort index –Uncertainty leads to fewer consumer purchases. –Political instability –Crime, poverty, and family instability Costs of Instability (cont.) Measuring Consumer Discomfort

21. Business Cycles Economic growth is typically marked by periods of recession followed by periods of expansion. A business cycle is the period from the beginning of one recession to the beginning of the next. VS 1

22. VS 2 Inflation The economy faces inflation when the general level of prices increases. If excessive, inflation can have a disruptive effect on the economy.

23. VS 3 Unemployment The unemployment rate includes those individuals who are actively looking for a job but work less than one hour a week for pay or profit. It does not include people who are underemployed, working part-time, or have given up the job search.

24. Figure 4

25. Figure 5

26. Figure 6

27. DFS Trans 1