1. Business Cycles and Fluctuations

2. Business Cycles are the regular ups and downs of real GDP
Business Fluctuation is the rise and fall of real GDP over time in an irregular manner

3. Business Cycles: Characteristics and Causes
Phases of the Business Cycle
Recession – a period of time which real GDP usually declines for at least two quarters in a row or 6 consecutive months
Begins when the economy reaches a peak and ends in a trough
Expansion – a period of recovery from a recession
Expansion continues until the economy reaches a new peak.
When a new peak is reached, a new cycle begins

5. Business Cycles: Characteristics and Causes
Changes in Investment Spending
When the economy is expanding, businesses expect future sales to be high so they invest heavily
When the spending for future growth slows or stops, the economy slows and a recession may result

6. Business Cycles: Characteristics and Causes
Innovation and Imitation
A new way of performing a task
When a business innovates, it often gains an edge over competitors
Other companies must imitate to remain competitive
During times of innovation and imitation companies invest heavily and the economy booms

7. Business Cycles: Characteristics and Causes
Monetary Policy Decisions
When interest rates fall, spending increases, economy rises
High spending causes demand to increase and interest rates rise, causing economy to slow
External Shocks
Things like oil prices, wars, and international conflict can have an effect on the economy

8. Business Cycles in the US
The Great Depression
Began on Black Tuesday, October 29, 1929
Lasted until 1933
GDP declined 50 percent from $103 billion to $55 billion
Unemployment rose from 1.6 million people to 12.8 million people

9. Business Cycles in the US
Recovery and Legislation
Rise in government spending helped the economy to recover a small amount
A number of laws and agencies were established from 1933 to 1940
Social Security Act passed in 1935
Securities and Exchange Commission created
Federal Deposit Insurance Corporation (FDIC)

10. Business Cycles in the US
Business Cycles after WWII
Cycles were more moderate after WWII
Shorter recessions and longer periods of expansion
Average length of recession was 10 months and length of expansion was 54 months
Reagan expansion lasted 8 years with no recession
Clinton expansion lasted almost 10 years
Small recession in 2001 followed by growth until 2008
Collapse of the housing market in 2007 caused recession from