1. The Business Cycle

2. The Business Cycle
Business Cycle represents the tendency of the economy to go from good to bad and back again
Common in free-market economies
Expansion- the economy is booming and GDP increases
Inflation (rise in the costs of goods and services) often accompanies expansion
Prices inflate as customers compete to buy scarce products

3. The Business Cycle
Increased competition forces businesses to pay higher prices for raw materials and transportation
May also have to increase wages for workers or continuously hire more people
Inflation and expansion raise the costs of production
Businesses will then have to increase the prices of their products to make a profit
At some point, expansion and inflation stop- the business cycle has reached a peak

4. The Business Cycle
After the economy peaks, economic activity begins to slow
Economic slowdowns are called contractions
If the contraction lasts long enough and is severe enough, a recession occurs
During a recession, businesses fail, more people are unemployed, and profits fall

5. The Business Cycle
When the economy reaches its lowest point, it is in a trough
If the trough if particularly low, the economy is in a depression
During a depression, unemployment is very high
People don’t have as much money to buy goods/services, so businesses suffer or close
The economy will bounce back and begin to grow again after hitting a trough
The business cycle continues

7. The Great Depression
The worst economic depression in our nation’s history
Occurred in October, 1929
Stock prices greatly fell, many banks closed, thousands of people lost their savings

8. The Great Depression
1932- businesses were producing half as much as they were in 1929
Thousands more businesses were closed
Crop prices were lower than ever
Farmers couldn’t make any money
1933- one in four Americans were unemployed
Unable to pay their mortgages, many Americans lost their homes
The combination of FDR’s New Deal legislation and war-time spending during WWII would ultimately pull us out of the Depression

9. Old Theories of the Business Cycle
Before the Great Depression, most economists thought the business cycle should be left alone
Unwise for the government to try to control inflation, boost production, or end unemployment
These economists thought the problems that came with the business cycle would resolve themselves and that recessions would not last long
The Great Depression proved all of this was wrong (it lasted over 10 years) and that government intervention in the economy was necessary

10. Government Efforts
FDR’s New Deal program saw the government hire unemployed workers to do work such as create parks, build schools, and improve the infrastructure of our country
The Civilian Conservation Corps worked on projects to restore forests, build national parks, and protect natural resources
The Federal Deposit Insurance Corporation (FDIC) was set up to insure bank deposits
Ensures the money you deposit in the bank will be kept safe

11. Government Efforts
Dishonesty and fraud in the stock market was partially responsible for the Great Depression
The Securities and Exchange Commission (SEC) was established to oversee the buying and selling of stocks and bonds
The Social Security system was also established as a part of the New Deal
Regular payments to elderly/retired, disabled
Unemployment compensation was also created during this time

12. Government Efforts
Many of the measures put in place during the New Deal are still in effect today
These measures still have not ended the economic challenges presented by the business cycle, but they have so far prevented another major depression
Americans still disagree about the extent of government intervention in the economy

13. ? List and briefly describe the four phases of the business cycle
Draw the business cycle
What pulled the country out of the Great Depression?
What were the old theories about the business cycle?
List and briefly describe one program that was established through the New Deal