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

 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

 Recessions generally defined as period when GDP falls for two consecutive quarters (6 months)  Depressions considered to be severe recessions]

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

 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

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

 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

 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

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

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.