1. Reading the Business Cycle

2. Fill in the blanks
What goes up, must come _______. Too much of a good thing, is a _____ thing. Life has its ups , and ________. All good things come to an ___________.

3. Real GDP is at its highest point of the business cycle.
The lowest point of real GDP reached during the business cycle is known as the trough. If the trough is particularly deep, it may be called a depression. A depression is an economic situation where the level of output falls to especially low levels and unemployment climbs to very high levels relative to the historical average.
Real output in the economy is decreasing, and the unemployment rate is rising. As the contraction continues, inflationary pressures subside. If the recession continues long enough, prices may actually start to fall, a situation known as deflation.
Peak
Contractionary
Expansionary
Real GDP is at its highest point of the business cycle.
Expansionary
Long-run trend of real GDP
Real output in the economy is increasing and the unemployment rate is declining. As the economic expansion continues, inflation may begin to accelerate.
Trough

4. Long-run trend of real GDP
- Inflation
- Interest rates are high
- Low unemployment 4%
Peak
Contractionary
Expansionary
Expansionary
Long-run trend of real GDP
Trough
A recession occurs when real GDP falls for two consecutive quarters.
- Deflation
- Interest rates are low
- High unemployment +6%

5. Expansionary AS
A minimum wage increase or tax cut can shift aggregate demand to the right causing demand for all goods to increase, and may lead to inflation. P1 P
Price Level
AD1 AD Q Q1
Real GDP

6. Contractionary AS
A tax increase or less government spending can shift the demand curve to the left causing demand for all goods to decrease and may lead to a recession. P
Price Level P1
AD1 AD Q1 Q
Real GDP

7. Contraction/Expansion of the Business Cycle
Drop in business spending
High unemployment (6 - 10% in recession)
Interest rates go from high to low
Consumer confidence
Saving for a rainy day
Deflation may occur
Expansion
Business investments increase
Interest rates go from low to high
Consumer confidence increases
Low unemployment
Inflation may rise

8. You are in an economy that depends on sales of consumer goods
You are in an economy that depends on sales of consumer goods. Consumer spending is leading to economic expansion. Consumers are buying houses, cars, and electronic goods. These purchases are creating new jobs for workers in these industries.

9. The following occupations should stand
Autoworkers
Home builders
Airplane workers
Computer software designers

10. The following occupations should stand
Clothing sales workers
Restaurant workers
Hair Stylists
Electronic entertainment sales workers
As people’s incomes increase they become interested in more purchases of things such as clothing, meals in restaurants, and entertainment.

11. Consumer spending is beginning to decline!!
Consumers choose to spend less on clothing, meals in restaurants, and entertainment……
Clothing sales workers
Restaurant workers
Hair Stylists
Electronic entertainment sales workers

12. Consumer spending continues to decline!!
Consumers and businesses choose to spend less on cars, houses, airplanes, and computer equipment……
Autoworkers
Home builders
Airplane workers
Computer software designers