1. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE1 Economic Conditions Change Goals Describe the four phases of the business cycle. Explain causes of inflation and deflation. Identify the importance of interest rates. 2-2

2. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 2 Key Terms business cycle prosperity recession depression recovery inflation price index deflation

3. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 3 THE BUSINESS CYCLE Prosperity Recession Depression Recovery

4. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 4 What are the four phases of the business cycle? Answer The four phases of the business cycle are prosperity, recession, depression, and recovery. Checkpoint >>

5. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 5 CONSUMER PRICES Inflation Causes of inflation Measuring inflation CPI (Consumer Price Index) Deflation

6. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 6 What are the main causes of inflation? Answer Inflation is an increase in the general level of prices that occurs when the demand for goods and services is greater than supply. Checkpoint >>

7. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 7 INTEREST RATES Types of interest rates Prime Discount T-Bill Treasury Mortgage Corporate Certificate of Deposit Changing interest rates

8. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 2 8 How do interest rates affect business activities in our economy? Answer Interest rates can encourage or discourage borrowing and spending. Lower interest rates allow consumers greater spending power, which increases demand, productivity, and employment. Businesses often pass on the cost of higher interest rates to consumers. Checkpoint >>