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AP Macroeconomics Coach Guttmann Unit I – Basic Concepts
Business Cycles AP Macroeconomics Coach Guttmann Unit I – Basic Concepts
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Business Cycle Phases GDP Trend Line Peak Real GDP Trough Time
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Business Cycle Phases GDP Trend Peak Line Real GDP Trough Time
EXPANSION
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Business Cycle Phases GDP Trend Peak Line Real GDP Trough Time
Recession
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Business Cycle Phases GDP Trend Peak Line Real GDP Trough Time
Depression
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Business Cycle Phases GDP Trend Line Peak Real GDP Trough Recovery
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Reasons for Business Cycles
Capital Expenditures
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Reasons for Business Cycles
Capital Expenditures Inventory Adjustments
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Reasons for Business Cycles
Capital Expenditures Inventory Adjustments Innovation & Imitation
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Reasons for Business Cycles
Capital Expenditures Inventory Adjustments Innovation & Imitation Monetary Factors (“The Fed”)
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Reasons for Business Cycles
Capital Expenditures Inventory Adjustments Innovation & Imitation Monetary Factors (“The Fed”) External Shocks (Supply Shocks)
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Predicting Business Cycles
Econometric Models GDP = C + I + G + X C = Consumer Spending I = Business Investment G = Government Spending X = Net Exports (Exports - Imports)
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Predicting Business Cycles
Econometric Models GDP = C + I + G + X C = Consumer Spending I = Business Investment G = Government Spending X = Net Exports (Exports - Imports) Index of Leading Economic Indicators
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Effect on Investing Value of Investments
Rapid growth leads to inflation More $ = Less value Dollars saved worth less
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Effect on Investing Value of Investments
Rapid growth leads to inflation More $ = Less value Dollars saved worth less Unstable growth affects markets Stock market reacts quickly = instability Investments can gain and lose value quickly
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Balance Investments Risk - Reward
Growing economy causes “risky” investments to grow faster - “A rising tide lifts all boats”
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Balance Investments Risk - Reward
Growing economy causes “risky” investments to grow faster - “A rising tide lifts all boats” Falling economy causes “risky” investments to fall faster - “Don’t try to catch a falling knife”
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Balance Investments Risk - Reward
Growing economy causes “risky” investments to grow faster - “A rising tide lifts all boats” Falling economy causes “risky” investments to fall faster - “Don’t try to catch a falling knife” “Timing the Market” is dangerous and costly
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Balance Investments Risk - Reward
Growing economy causes more competition for $$$ Inflation possible Interest rates go up
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Balance Investments Risk - Reward
Growing economy causes more competition for $$$ Inflation possible Interest rates go up Falling economy causes investor “flight to safety” Invest in “safer” areas Sometimes “flight” to cash or commodities (gold)
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