1. THE BUSINESS CYCLE

2. To recur – to happen all over again To fluctuate – to vary, to change
The Business Cycle
the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time (
To recur – to happen all over again
To fluctuate – to vary, to change
Output - production

3. What happens in a BOOM? Businesses produce more goods
Businesses invest more in machinery
Consumers spend more money
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
Level of investment increases
As a result the level of employment, incomes and trade rise
There is overall prosperity

4. What causes RECESSION?
Decrease in spending by consumers due to lack of faith in the economy. 
Less consumption would mean decline in demand for products.
Which leads manufacturers to cut down on production.
Lower production would lead to job cuts.
Which leads to high levels of unemployment.
Which perpetuates the cycle due to limited spending.

5. WHAT HAPPENS IN RECESSION?
WHAT HAPPENS IN A BOOM?
WHAT HAPPENS IN RECESSION?
Businesses produce more goods
Businesses invest more in machinery
Consumers spend more money
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
Business cut back on production
Some businesses may go bankrupt
Consumers spend less money
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
Prices start to fall

6. contraction /kən’trækʃən/, downturn expansion, upturn bottom top
LEAD-IN p. 114 VOCABULARY 1 p.114
MATCH.
growth
peak
recession
trough /trɔf/
RECESSION → A DOWNTURN THAT LASTS MORE THAN SIX MONTHS
DEPRESSION OR SLUMP → A DOWNTURN THAT LASTS FOR A YEAR OR TWO
contraction /kən’trækʃən/, downturn
expansion, upturn
bottom
top

7. Watch and fill in the missing words.

8. ECONOMIC TRENDS IN RECESSION
EXPANSION
Economic activity slows down Consumers spend less money Businesses make fewer sales Inventories build up Companies earn less revenue Fewer orders are placed Businesses cut back on output Unemployment rate goes up Businesses reduce the number of people on payrolls Finally it reaches a trough
Economic activity picks up again Sales improve Excess inventories are used up New orders are placed Production is ramped up again Job opportunities improve Unemployment rate comes down Finally it tops out

9. Translate parts of the sentences using new collocations:
Economic activities se usporavaju.
Višak zaliha je used up.
Fewer se naručuje.
Firme smanjuju on output.
Stopa nezaposlenosti goes up.
Businesses reduce broj ljudi na platnom spisku.
Production se opet potiče.
Finally it dosegne najnižu točku ekonomskog ciklusa.

10. V, U or W - shaped RECESSION????

11. U – SHAPED RECESSION Slowdown lingers and the recovery is delayed
V –SHAPED RECESSION Bottoms out and rebounds quickly

12. INTERNAL (ENDOGENOUS) THEORY
GOOD PERIOD ( BOOM)
People spend
People run up debts
DOWNTURN (RECESSION)
Debts have to be paid
Demand decreases
Interest rates rise which means more to pay on mortgage or rent
People fearing the possibility of losing their jobs start saving money and consume less and consequently there is a fall of demand and fall in production and employment

13. EXTERNAL (EXOGENUOUS) THEORIES
Causes are outside economic activity
scientific advances
natural disasters
elections or political schocks
demographic changes
technological inventions (steam engines, railways, automobiles, electricity, microchips) which lead to periods of “creative destruction”

14. TRUE OR FALSE Reading MK. p. 114-115
During a downturn, parts of the economy expand to the point where they are working at full capacity.
A long period of contraction is called a boom.
A downturn that lasts more than six months is called a slump.
People tend to spend less when the economic times are good and when they feel confident about the future.
When interest rates rise people find themselves paying more than they anticipated on their mortgage and rent.
Companies only invest when demand is falling.
If demand exceeds supply, prices should fall and encourage people to start spending more.
Creative destruction means that radical innovations may destroy established companies or industries.

15. Key:
An upturn
Expansion
A recession
Spend more
True
Demand is growing
Supply exceeds demand
true

16. Match up the words with similar meaning:
Boom
Decrease
Depression
Excess
Expand
Expenditure
Output
recovery
Slump
Spending
Grow
Stimulate
Upturn
Production
Surplus
reduce

17. KEY
Boost - stimulate
Decrease – reduce
Depression – slump
Excess – surplus
Expand – grow
Expenditure – spending
Output – production
Recovery - upturn

18. Match up the words with opposite meaning:
Boom
Contract
Demand
Endogenous
Peak
save
Trough
Expand
Spend
Depression
Supply
exogenuous

19. KEY
Boom – depression
Contract – expand
Demand – supply
Endogenuous – exogenuous
Peak – trough
Save - spend

20. GOVERNMENT AND THE BUSINESS CYCLE
In order to prevent the economy from running too hot (inflation) or too cold (recession, depression), the government often becomes involved in efforts to try and stabilize the economy.
The government has two major tools to try and stabilize the economy and achieve its goals:
Fiscal policy and monetary policy.

21. MONETARY POLICY
There is a relationship between the amount of money in the economy (the money supply) and the level of business activity. If the money supply increases, consumers spending will increase, promoting growth. If the money supply decreases, the economy is likely to contract.

22. MONETARY POLICY
The government, through the Central bank, can regulate the money supply to attemt to promote or inhibit economic activity.
What the central bank does most often is raise (to slow down) or lower (to speed the economy up) interest rates.

23. FISCAL POLICY
Fiscal policy is the taxing and spending decisions that are made by the government.
Fiscal policy actions of the government fall into two general categories:
Raise or lower taxes
Increase or decrease government spending

24. John Maynard Keynes (1883-1946)
The most influential economist of the mid-20th century
A school of economic thought named after him→ Keynesian or Keynesianism
His ideas about government intervention in the economy, and the use of fiscal and monetary measures to diminish the effects of economic recessions and periods of high unemployment, were put into practice by many major Western economies shortly before the end of the Great Depression in the 1930s
Keynes argued against the traditional view that the free markets would automatically provide full employment as long as workers reduced their wage demands
Keynesian economic policies were widely adopted in the 1950s and 60s

25. In 1971 the Republican US President Richard Nixon famously said: “We are all Keynesians now” but by the end of the 1970s, the monetarist argument that Keynesian policies ineviably lead to inflation had become dominant
Keynesianism made a dramatic return in the crisis of 2008