Objective Identify the phases of the business cycle and the economic indicators used to measure economic activities and trends. Assess how current events impact decisions by consumers, producers, and government policy makers. I: Business Cycle: Four cycles in an economy A: Peak: period of prosperity, strong productivity, general financial well-being. B: Contraction: a decline in economic activity C: Trough: the economy has “bottomed out” low point in the business cycle. 1. recession: two consecutive quarters of declining output ( 4 quarters in a year) 2. depression: a deeper and longer recession; low production, high unemployment, bus. failures. (The Great Depression of the 1930’s)

II: Economic Indicators of a healthy or sick economy A: Gross Domestic Product (GDP) is calculated by adding up the value of this country’s annual output of all final goods and services. ( Ex: the house, not the lumber, nails, etc. ) Includes everything produced in that country; a Japanese car manufactured in Tennessee is counted but something manufactured in Mexico or Japan is not)

B: Gross National Product: (GNP) : is a measure of the market value of all goods and services produced by Americans in one year. (Ex: American Oil Co. in Scotland) An American car company that produces cars in Mexico is included. C: Consumer Price Index: measures the average change in prices for such items as housing and food for the average urban consumer. The market basket. ◦ 1. CPI is used to calculate inflation. ◦ CPI for 1979 was 72.6 and the CPI for 1980 was 82.4 before Reagan took over as president.

Boom or Bust WHAT HAPPENS IN A BOOM? - Businesses produce more goods - Businesses invest in more machinery - Consumers spend more money. There is a FEELGOOD FACTOR - Less money is spent by the Government on unemployment benefits - More money is collected by the Government in income tax and VAT - Prices tend to increase due to extra demand

WHAT HAPPENS IN A RECESSION? - Businesses cut back on production - Some businesses may go bankrupt - Consumers spend less money. Fall in FEELGOOD FACTOR - Individuals may lose their jobs - More money is spent by the Govt on unemployment benefits - Less money is collected by the Govt in income tax and VAT (Value added tax) - Prices start to fall

The Business Cycle

The National Bureau of Research (NBER) measures the state of the economy on three factors: ◦ Employment ◦ Personal income ◦ Industrial Production ◦ Manufacturing and Trade sales

Economic Indicators Continued D: Per Capita GDP: is the value of what a person produces in a year ◦ 1. it is calculated by dividing the GDP by the number of people who live in a nation. E: Standard of Living: measures prosperity and wealth. Education, income, debt levels, and housing quality contribute to this economic indicator.

III: Government Debt and Global Competition. A: National Debt: the total amount a country has borrowed plus interest on that debt. Downsizing: when businesses cut their workforce to cut costs, and increase profits. Outsourcing: when another company, often overseas, manages part of their operations, such as customer service and information technology.

Read p. 636 Answer 2-4