Presentation on theme: "1. 2 Objectives Give an example that shows how a change in one part of the economy can cause a change in another part. List the three phases of the."— Presentation transcript:
2 Objectives Give an example that shows how a change in one part of the economy can cause a change in another part. List the three phases of the business cycle. Make a graph of a business cycle and label the phases.
3 Objectives Describe economic conditions during each phase of the business cycle. Describe the level of GDP and unemployment rate during each phase of the cycle.
5 The status of a market economy goes up and down, like a roller coaster
6 Market Economy Dynamics A market economy is either growing or slowing List some signs of economic growth. List some signs of economic slowdown.
7 Market Economy Dynamics Expansion period of economic growth prosperity economic good times Contraction period of economic slowdown hardship economic bad times
8 Market Economy Dynamics Periods of expansion alternate with –periods of contraction This alternation of economic expansion and contraction is called the business cycle
9 Economic Spirals All parts of an economy are interconnected A change in one part can cause a change in another part
10 Economic Spirals Upward spiral When one part of the economy does well it causes other parts of the economy –to do well Productivity up Expansion Sales up Company earns more Workers buy more Workers earn more
11 Economic Spirals Downward spiral When one part of the economy does poorly it causes other parts of the economy –to do poorly Productivity down Contraction Sales down Company earns less Workers buy less Workers earn less
12 The Business Cycle To understand business cycles economists make graphs They plot GDP or percent change in GDP –over time Even though each business cycle is different each has the same basic shape
13 Business Cycle Time GDP Expansion Contraction Peak Trough Recovery Recession Prosperity
14 How is the graph of a business cycle like a roller coaster?
15 The Business Cycle Every business cycle graph has one peak (high point) one trough (low point) Every business cycle graph has one period of expansion one period of contraction
16 The Business Cycle The high and low points on a graph help identify the three phases in each business cycle prosperity recession recovery
17 Business Cycle Time GDP Recovery Recession Prosperity
18 Prosperity Prosperity occurs around the peak of the business cycle economic good times people doing well What happens economically during prosperity?
19 Prosperity During a period of prosperity consumers buy more retail sales rise and inventories fall production increases businesses hire more workers Economic indicators GDP rises unemployment is low CPI and inflation rise only a little
20 Recession Recession occurs on the down slope of the business cycle economic hard times people doing poorly What happens economically during recession?
21 Recession During a period of recession consumers buy less retail sales fall and inventory rises production slows businesses fire workers Economic indicators GDP falls unemployment rises
22 Depression Depression economic contraction severe long lasting causes widespread economic hardship Great Depression 1929 to 1941
23 Recovery Recovery occurs after a recession occurs on the up slope of a business cycle economy getting better people starting to do better
24 Recovery During a recovery period consumers start buying more retail sales rise and inventories fall businesses start producing more businesses hire more people Economic indicators GDP rises unemployment starts falling
25 Business Cycle and Economic Indicators Each phase of the business cycle has typical economic indicators Economists and marketers study economic indicators –to predict what will happen in the economy –to help make good business decisions
26 * Sometimes before and during a depression, inflation is very, very high. Business Cycle and Economic Indicators Prosperity before the peak Recession contraction Depression severe contraction Recovery expansion GDP Unemployment Rate CPI/ Inflation ** Stock Market
27 Review What is the difference between expansion and contraction in the economy? What is a business cycle? Describe the three phases in a business cycle. What is the impact of economic interconnectedness?
28 Glossary business cycle. Alternating periods of expansion and contraction in the economy. contraction. Period of economic slowdown. depression. Economic slowdown that is very severe and lasts a long time.
29 Glossary downward spiral. Process that starts moving downward slowly, and then starts moving faster and faster downward. expansion. Period of economic growth. prosperity. Economic good times, when people are doing well financially.
30 Glossary recession. Period of economic contraction. recovery. Period after a recession during which the economy is expanding. upward spiral. Process that starts moving upward slowly, and then increases its upward movement faster and faster.