DIAGNOSING THE HEALTH OF OUR NATION’S ECONOMIC SYSTEM

 REAL GROSS DOMESTIC PRODUCT (GDP)  THE INFLATION RATE  THE UNEMPLOYMENT RATE  MEASURES THE OUTPUT OF FINAL GOODS AND SERVICES IN CONSTANT DOLLARS  MEASURES HOW RAPIDLY THE OVERALL NATIONAL PRICE LEVEL IS CHANGING  MEASURES THE PERCENTAGE OF THE LABOR FORCE THAT WISHES TO WORK BUT ARE JOBLESS.

Four Phases of the Business Cycle PEAK Level of business activity Time Trough TROUGH Expansion GROWTH TREND Expansion PEAK Contraction Contraction

 EXPANSION: GDP IS GROWING, CONSUMERS ARE SHOPPING, EMPLOYMENT IS IMPROVING AND PRICES ARE RISING  PEAK: HIGH POINT WHERE GDP STOPS GROWING, PRICES ARE AT THEIR HIGHEST AND UNEMPLOYED WORKERS ARE HARD TO FIND U.S. ECONOMIC GROWTH PER PERSON

 CONTRACTION: GDP IS SHRINKING, CONSUMERS ARE NOT SHOPPING, PRICES ARE FALLING AND WORKERS ARE LOSING JOBS  TROUGH: DEMAND, PRODUCTION AND UNEMPLOYMENT ARE AT THEIR LOWEST POINT  PEAKS AND TROUGHS ARE CORNERS FIVE CONSECUTIVE QUARTERS OF NEGATIVE GDP GROWTH IN

 “V” SHAPED: MOST DESIREABLE, INDICATES A QUICK REBOUND TO RECOVERY  “U” SHAPED: ECONOMY CONTRACTS BUT STRUGGLES TO RECOVER EXPERIENCING ANEMIC GROWTH FOR A WHILE  “W” SHAPED: INDICATES A DOUBLE DIP RECESSION WHERE RECOVERY IS FLEETING BEFORE A SECOND CONTRACTION  “L” SHAPED: THE GREAT DEPRESSION, YEARS OF A STAGNANT ECONOMY WITH NO RESPONSE TO REMEDIES.

EXTERNAL EVENTS LIKE INNOVATIONS, WARS, OR POLITICAL EVENTS

GOVERNMENT REGULATION "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system.” Consumer Confidence plummeted and the winds of contraction accelerated to unprecedented speeds. On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.” “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”