1. AIM: How do we as consumers impact our GNP?
Objective: SWBAT analyze the GNP of the United States.
SWBAT analyze business cycles.
Do now: In your own words define the GDP. Compare the GDP to the GNP.

2. GNP
GNP measures output of Americans, rather than output within the United States
GDP + $ from U.S. Business overseas - $ from Foreign Business here = GNP
Doesn’t help measure success of economy… more a measure of national economic power abroad

3. The Business Cycle
In any capitalist country, the economy will go up and down as time passes
This process looks like a roller coaster when graphed

4. The Business Cycle

5. Phases of the Business Cycle
Expansion – real GDP is rising
Peak – real GDP stops rising, unemployment % is low
Contraction – falling real GDP, increasing unemployment
Trough – lowest point, real GDP stops falling

6. Terms for Describing Contraction and Trough
Recession – contraction happens for 6 straight months
Depression – no official definition, just means extremely bad, long contraction
Stagflation – drop in GDP plus rising inflation

7. Factors That Cause the Business Cycle
Interest rates and credit fluctuations
The Fed helps to restrict these effects by increasing and decreasing rates to slow and speed the business cycle

8. Factors That Cause the Business Cycle
Consumer Expectations – they will spend if they believe times are good, they will save if they believe bad times are coming
Spending means banks have less capital, economy will expand now but contract later
High savings provides capital for future economic growth

9. Factors that Cause the Business Cycle
Savings Rate - % of disposable (spendable) income saved by Americans
Fun Fact! – Savings Rate generally drops in America during good economic times
What effect does that have?

10. Factors That Cause the Business Cycle
External Shocks – Negatively affect aggregate supply, thus dropping GDP while raising prices

11. Economic Indicators
Things to watch to see if the economy is in contraction or expansion
rate of new home construction
stock market activity
manufacturer’s new orders of capital goods