1. Business Cycle
Series of periods of growing and shrinking economic activity
Measured by increase/decrease in RGDP

2. 4 Phases
1. Expansion: economic activity begins to increase (RGDP increasing, UE down)
2. Peak: period of increase econ. activity
3. Contraction: period of slowed econ. activity (UE increasing)
4. Trough: lowest level

4. 2 Categories of Business Changes
1. Recession: 2 or more consecutive fiscal quarters of declining GDP
Producers/consumers scale back
UE increases
2. Expansion: Spending and production increases
Prices increase
UE decreases
Q1- Oct. 1st through the end of Dec.
Q2 Jan 1st through the end of March
Q3 April 1 through the end of June
Q4 July 1 through the end of Sept.

5. Monetary Policy Monetarists
Feds power to control money supply and credit
Believe competitive markets provide econ. stability
Less inclined to support govt. interaction
FEDERAL RESERVE (3 Tools)
ADAM SMITH
“Wealth of Nations”
Laissez faire

6. FISCAL POLICY Keynesians
Use of federal govt. power to tax and spend to regulate econ. activity
Instability is inherent in free market system
Support govt. intervention
John Keynes (1930s)
Before Keynes: balance budget
Prior to Great Depression govt. spending was 10% of GDP
FDR--> New Deal changes--> Deficit Spending
Provides framework for GDP formula

7. Government Budget Deficit Surplus Expenditures exceed revenues
Expenditures are less than revenues

8. National Debt vs. Deficit
TOTAL amount owed by govt
Deficit
YEARLY amount
Add all deficits and subtract few surpluses=ND
The United States has had a public debt since its founding in Debts incurred during the American Revolutionary War and under the Articles of Confederation amounted to $75,463, on January 1, 1791.

9. How big is this number? There are one million millions in a trillion.
One trillion is more stars than there are in the entire Milky Way galaxy
12 Trillion $1 bills, laid end to end, side to side, would pave every interstate, highway, and country road in America -- twice.
A trillion $10 bills, taped end to end, would wrap around the Earth more than 380 times.
You could spend $10M a day and it would still take you 273 years to spend $1 trillion

10. DOES IT AFFECT YOU? Transfer of purchasing power to public sector
Larger Debt = Larger Interest payments = More Taxes = Less Spending
2. Taxes needed to pay interest
Decrease incentive to work
Who owns our debt? What would happen if we defaulted?