1. Review #1
1.) In year 1, the cost of a market basket of goods was $760. In year 2, the cost of the same basket was $800. What was the consumer price index for year 2?
2.) In year 1, the cost of a market basket of goods was $870. In year 2, the cost of the same basket was $925. What is the consumer price index for year ?
3.) A nation has 125,000 employed people, 15,000 unemployed people, and 10,000 people who have given up looking for jobs. What is the size of this nation’s labor force?
4.) A nation has 100,000 employed people, 50,000 unemployed people, and 15,000 people who have given up looking for jobs. What is this country’s unemployment rate?
5.) Which component of GDP is affected by the following scenarios:
A foreign government imposes a tariff that discourages its citizens from buying goods from the U.S.
Because interest rates increased, businesses cut back on spending for new machinery.

2. The Business Cycle
SSEMA1: The student will illustrate the means by which economic activity is measured.
e. Define the stages of the business cycle, as well as recession and depression.
f. Describe the difference between the national debt and government deficits.

3. The Economy Is like a Roller Coaster it has it’s ups and downs
These ups and downs are called the Business cycle
The Business Cycle illustrates the goods times and the bad

4. Phases of the Business Cycle
Expansion – period of economic growth (rising GDP, falling unemployment rates, business prosperity
Peak – the height of expansion (GDP stops rising)
Contraction – economic decline (falling GDP, rising unemployment rates
Trough (TRAWF) – economy has reached its lowest point (GDP stops falling)

5. Special Contractions Recessions Depressions Stagflation
Severe recession lasting a longer period of time
Extremely high unemployment
Stagflation
Period where GDP declines and combines with a rise in price level (inflation)

6. The Business Cycle

7. Causes of the Business Cycle
High consumer demand causes expansion of the economy
People spending less causes a recession (consumer expectations)
Government policy can also cause the economy to expand or recess

8. Inflation
When the prices of a large number of goods goes up this is called inflation
Inflation can be a serious concern because most people’s pay checks do not go up as fast as inflation
Cost of Living Adjustments (COLA) important

9. Deflation
During deflation most things cost less however, wages can fall too.
Falling wages can result in unemployment

10. Keeping track of the Business Cycle
When the government collects the value of all new products made each year within a country this is called the Gross Domestic Product (GDP)
If the GDP goes up that means the economy is doing well because factories and people are busy working

11. Keeping track of the Business Cycle
Each month the government checks the price of over four hundred different products
This price check is called the Consumer Price Index (CPI)
The CPI is then compared to previous CPI’s
If there is a huge change this could indicate inflation

12. Deficits and national debt

13. National/Budget Deficits
government expenditures > tax revenue

14. National/Budget Surplus
tax revenue > govt. expenditures

15. National Debt
When govts. have deficits, they must borrow to make up the difference
The total amount of money a nation owes its creditors is the national debt