1. The Business Cycle

2. The Business Cycle

3. Worksheet
Chapter 12 Section 2
Use the book to complete the worksheet.

4. Four things that affect the Business Cycle
1. business investment
2. interest rates and credit
3. consumer expectations
4. external shocks

5. Definitions
Real GDP per capita - Real GDP divided by the total population
labor productivity - the amount of output produced per worker
Saving – income that is not used for consumption
savings rate – the percentage of money income that is saved

6. American Savings Rate

7. The paradox of thrift
What happens to an economy if everyone became savers at the same time?

8. Capital Deepening
capital deepening - process of increasing the amount of capital per worker
It’s been found that capital deepening increases GDP growth.
Higher savings rates leads to higher investment which can lead to capital deepening

9. Three things that can affect capital deepening
population
government taxes -
bad: used to finance a war, pork spending
good: used to invest in infrastructure
Foreign imports good or bad?
Good: if the imports are used as investments or improvements