1. Today’s LEQ: how does the business cycle reflect the health of the economy?

2.  The economy fluctuates between periods of macroeconomic expansion and contraction – this activity is called the Business Cycle  Represents major fluctuations (not day-to- day ups and downs)  Gross Domestic Product (GDP) is a good proxy for overall economic activity  GDP is the total value of all final g/s produced in an economy and helps to measure our economic well-being

4.  Recessions generally defined as period when GDP falls for two consecutive quarters (6 months)  Depressions considered to be severe recessions] http://www.nber.org/cycles/cyclesmain.html

5.  We are always somewhere on the business cycle and it impacts our lives everyday  How are we impacted during a period of Expansion? Contraction?

6.  Leading Indicators predict changes in the economy before they occur (i.e. Stock Prices)  Coincident Indicators measure the current state of the economy (Current Unemployment Rate)  Lagging indicators measure changes in the economy after they've occurred (Change in Unemployment Rate)  Why would it be helpful to predict/forecast turning points in business cycles? Visual 2

7.  Economic forecasters make weather forecasters look good.”  Economists have predicted six out of the last our recessions.”

8.  There are many different types of forecasts and forecasting methods, but it’s difficult  The problem? Too many variables interacting and changing all at once; impossible to make consistently accurate forecasts Visual 3 – Lesson 20, Activity 1

9.  Your activities contain actual information about the leading indicators from two different dates in recent history  Read the information from the leading indicators carefully and prepare a GDP forecast

10.  Activity 2 was from January 1997. The economy was expanding for close to six years, and it continued to expand until March 2001. Accurate forecasts would have predicted significant growth  Activity 3 was from October 2000. The economy entered into a recession that lasted from March until November 2001. The accurate forecasts would have predicted a turn for the worse, and that a recession was coming.

11. 1. List the phases of a typical business cycle. Describe what happens during an expansion phase and contraction phase. 2. Explain how the business cycle reflects the health of the economy.