1. Chapter 12.2 notes
Business Cycles

2. Business Cycles in the U.S.
Business cycle: series of growing and shrinking periods of economic activity measured by real GDP

3. Phases of the business cycle:
Stage 1: Expansion – period of economic growth, increasing real GDP
Stage 2: Peak – real GDP is at it’s highest
Stage 3: Contraction – GDP declines, producers cut back, unemployment rises
If a contraction lasts 6 consecutive months it’s a recession
Sometimes recessions turn into depressions
Sometimes stagflation occurs – prices up during a slowdown
Stage 4: Trough – real GDP and unemployment stop declining

5. Aggregate Demand The sum of all the demand in the economy
Looks like a D curve

6. Aggregate Supply
The sum of all the supply in the economy

7. AS and AD on a graph

8. Causes of the Business Cycle
Business Decisions – reducing production, laying off workers, or vice versa
Changes in interest rates – IR up = spending down for C and P; IR down = more spending
Consumer Expectations – Consumer confidence determines our consumption
External issues – increase in oil prices, wars, conflict, hurricanes

9. Predicting Cycles
Leading indicators – such as new building permits, stock prices, etc.
Coincident indicators – such as employment, sales, personal income
Lagging indicators – such as length of unemployment and consumer credit

10. The Great Depression began with “Black Tuesday” (10/29/1929)
GDP fell almost 50%
12.8 million unemployed (25%)
5 cents/hour was the avg. wage
banks failed, depositors were not protected

11. Assignment
Incorporate the business cycle into some other illustration that shows how people feel or what they are experiencing during each stage of the cycle.
Get a plain white sheet of paper, colored pencils, ruler, etc. whatever you need.