The Business Cycle.

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Presentation transcript:

The Business Cycle

The Business Cycle

Expansion - a period of economic growth as measured by a rise in real GDP Contraction - an economic decline marked by falling real GDP Peak - the height of an economic expansion Trough - the lowest point in an economic contraction Recession - prolonged economic contraction. GDP falls for two consecutive quarters (6 months)

Gross Domestic Product GDP Gross Domestic Product

remember the factors of production pizza shop? What is GDP? We can use GDP to help determine the health and progress of a country’s economy Gross Domestic Product (GDP) - the dollar value of all final goods and services produced within a country’s borders in a given year. Final Goods and Services - products in the form sold to consumers Intermediate Goods - used in the production of final goods remember the factors of production pizza shop?

When Calculating GDP... We would include the dollar value of the Pizza Not the dollar value of the tomatoes, cheese, flour, pepperonis, and sauce it is made of We would include the dollar value of the Dresser Not the dollar value of the wood, hardware, and glue it is made of

Analyzing the GDP of a country from year to year will help in determining the health and progress of a nation’s economy. United States GDP: 2009 - $13.9 Trillion 2010 - $14.4 Trillion 2011 - $14.9 Trillion

What other concept does this graph show? U.S. GDP 1960-2011 What other concept does this graph show? GDP in current U.S. dollars. Not adjusted for inflation

Inflation - a general increase in prices

Causes of Inflation - changes in prices, income, and money supply What would cause the price of a burger to increase from 15 cents to just over $1? Causes of Inflation - changes in prices, income, and money supply

Wages and Prices Purchasing Power - the ability to purchase goods and services. As prices rise, the purchasing power of money declines. Money Supply - the amount of money in the economy. This is the primary tool the government uses to regulate inflation in the U.S. economy.

The Wage-Price Spiral The Process by which rising wages cause higher prices, and higher prices cause higher wages.

The Wage-Price Spiral The Wage-Price Spiral

Inflation Demonstration

Inflation Activity Questions Based on our definition of inflation, Why is this activity a demonstration of inflation? What type of money were we using in this activity? Explain how the money in this activity was used as a “unit of account” Did the value of the goods change? Did the value of the money change? How might inflation affect investments?