Presentation on theme: "2-2 Economic Conditions Change"— Presentation transcript:
1 2-2 Economic Conditions Change Objectives:Describe the four phases of the business cycleExplain causes of inflation and deflationIdentify the importance of interest ratesEssential Question:What causes the phases of the business cycle to change?
3 The Main IdeaIn a market economy, there is an economic cycle, which includes four stages: prosperity, recession, depression, and recovery. These are also the four stages of the business cycle. In the last few decades, we have experienced the economic cycle a number of times.
4 Economic CycleUnited States history has had patterns of good times to bad times back to good times.
5 Four Stages of the Business Cycle The business cycle of one country can affect other trading partners.business cyclethe rise and fall of economic activity
6 Business CycleThe business cycle has four parts:ProsperityRecessionDepressionRecovery
8 Four Stages of the Business Cycle Prosperity is at the peak of the business cycleDemand for goods and services is very high..Unfortunately, it cools down and activity slows downprosperitya peak of economic activity
9 Characteristics of Prosperity Graphic OrganizerCharacteristics of ProsperityHigher wagesGreater demand for goods to be producedMore people buy houses, which creates work for buildersPeople buy more goods from other countries, which benefits those countries
10 Four Stages of the Business Cycle Recession is when the economy slows down.May not be too serious or too long, but signals trouble for some people’s jobs.Ripple Effect-drop in related business. Ex – home builderrecessionwhen economic activity slows down
11 RecessionA recession in one industry can cause a ripple effect throughout the entire economy.
12 Characteristics of a Recession Graphic OrganizerCharacteristics of a RecessionBusinesses produce less which means they need less workers Unemployment increasesPeople have less money to spendFewer goods and services are producedThe GDP declines
13 DepressionIf a recession deepens and spreads throughout the entire economy, a nation may move into a depression.depressionA phase marked by a prolonged period of high unemployment, weak consumer sales, and business failures.
14 Characteristics of a Depression Graphic OrganizerCharacteristics of a DepressionHigh unemploymentLow production of goods and servicesCan last for several yearsSpreads to other countriesHigh number of unused manufacturing facilitiesVery rare
15 DepressionThe stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression.Great Depression Video #1Great Depression Video
16 Two partner groupsGet with a partnerIn your most creative way possible, using construction paper, markers, color pencils etcMake a diagram of the Business Cycle
17 Graphic Organizer Many banks around the country failed Unemployment rose nearly 800 percentThe Great DepressionMany townsand other civic bodies printed their own moneyThe GDP fell nearly 50 percentThe average manufacturing wage was 5 cents an hourThe money supply fell by one-third
18 Economic downturn doesn’t go on forever. RecoveryEconomic downturn doesn’t go on forever.Gradual processProduction starts to increase during a recovery.recoverya rise in business activity after a recession or depression
19 Characteristics of a Recovery People start going back to workPeople have money to purchase goods and servicesDemand for goods and services stimulates more productionNew businesses openBusinesses become more innovative
20 RecoveryIn 1939, the United States was beginning to recover from the depression when World War II began.The war increased the rate of recovery because of the demand for production.What things were produced?
21 Consumer Prices Inflation The buying power of the dollar decreases If prices increased 5% during the last year, items that cost $100 then would now cost $105.Ex: “Back when I was a kid…..a candy bar was 45 cents!”
22 With inflation, one’s buying power decreases. Rate of InflationWith inflation, one’s buying power decreases.inflationAn increase in the general level of prices.
23 Rate of Inflation When demand is greater than supply War Causes of InflationWhen demand is greater than supplyWarIncrease in the price of raw materialsIncrease in expensesIncrease in salariesToo much money circulating in the economy
24 Rate of InflationDeflation can occur when the supply of goods is greater than the demand.deflationa general decrease inthe price of goods and services
25 Graphic Organizer Deflation Economy produces more goods than people want.Sellers lower prices.Sellers cut production.People have less money to buy goods.Demand continues to go down.
26 What is the stage that follows a recession or depression? The recovery stage can happen after either a recession or a depression.
27 What is the difference between a recession and a depression? A recession is a slight downturn; a depression is a major downturn.
28 Why may innovation play an important role in the recovery stage of a business cycle? Innovation creates demand that leads to more employment and production, which leads to more demand.
29 Section 2-3. Other measures of Business Activity
30 ObjectivesDiscuss investment activities that promote economic growthExplain borrowing activities by government. Businesses and consumersDescribe future concerns of economic growthEssential Question – how does the government borrow money?
31 Investment Activities Investing can happen in numerous ways:You are investing in your future right now by being in schoolCompanies invest all the time by buying buildings and equipment
32 Capital SpendingCapital Spending refers to money spent by a business for an item that will be used over a long period.Capital projectsInvolve spending by businesses for items such as land, buildings and equipment and new products.
33 Where does the moola come from for all these capital projects!???!? Personal SavingsStock investmentsBonds
35 -Corporations are a major type of business org. The Stock Market-Corporations are a major type of business org.-Businesses can’t come up with all the money on their own so people invest in themStockRepresents ownership in a corporation
36 David Choe – graffiti artist Multi-millionaire overnight!Was given the choice for $60,000 or stock to spray paint the walls of Facebook’s office.He chose stock – now worth more than $200,000,000!Video
37 What causes the value of stocks to change? Affected by many factors, but the main one is SUPPLY and DEMANDIf a company has higher earnings, more people will DEMAND it’s stock and want to buy itCauses the value of stock to increase
39 Another investment activity involves the sales of bonds. The Bond MarketAnother investment activity involves the sales of bonds.If you purchase a bond, you are a creditor…it means you lent money to the organizationbondA bond represents debt for an organization.
40 Government DebtIf a surplus exists, government may reduce taxes or increase spending on various programsBudget surplusWhen the government spends LESS than it takes in.
41 Government Debt Budget deficit When the government spends MORE than it takes in.This happens more often
42 Government Debt National debt The total amount owed by the federal government