1. Business cycle, cont.

2. Internal (endogenous) theories:
Causes of the business cycle: internal & external (How is internal theory different from external theory?)
Supply the missing words to complete the notes:
Internal (endogenous) theories:
beliefs about the f______
i_______ rates / value of a_______ (houses)
wages and salaries ↓
c__________ (demand ) (demand )
↓ ↓
investments  investments 
Changes in interest rates,
changes in people’s beliefs about the future,
and changes in the level of wages and salaries affect the level of consumption.
Investment is closely linked to consumption and will only happen when both demand and output are growing at the same rate.

3. Internal (endogenous) theories:
Causes of the business cycle: internal & external How is internal theory different from external theory?
Internal (endogenous) theories:
beliefs about the future
interest rates / value of assets (houses)
wages and salaries ↓
consumption (demand ) (demand )
↓ ↓
investments  investments 
PAIRWORK: Practice explaining the internal theory of the business cycle.

4. Internal (endogenous) theories:
Causes of the business cycle: internal & external How is internal theory different from external theory?
Internal (endogenous) theories:
beliefs about the future
interest rates / value of assets (houses)
wages and salaries ↓
consumption (demand ) (demand )
↓ ↓
investments  investments 
External (exogenous) theories:
technological, political & demographic changes, natural
d________, scientific a________ (c_______ d_______)
Changes in interest rates,
changes in people’s beliefs about the future,
and changes in the level of wages and salaries affect the level of consumption.
Investment is closely linked to consumption and will only happen when both demand and output are growing at the same rate.

5. Internal (endogenous) theories:
Causes of the business cycle: internal & external How is internal theory different from external theory?
Internal (endogenous) theories:
beliefs about the future
interest rates / value of assets (houses)
wages and salaries ↓
consumption (demand ) (demand )
↓ ↓
investments  investments 
External (exogenous) theories:
technological, political & demographic changes, natural
disasters, scientific advances (creative destruction)
PAIRWORK: Practice comparing internal and external theories of the business cycle.
Changes in interest rates,
changes in people’s beliefs about the future,
and changes in the level of wages and salaries affect the level of consumption.
Investment is closely linked to consumption and will only happen when both demand and output are growing at the same rate.

6.  MK, p 116: Vocabulary 2.1.
Listening 1: Consumption & the business cycle
1 What does Kitson say many economists believed in 2007 and before?
2 According to Kitson, were they right?
3 What does Kitson say causes economic booms?
4 What about depressions?
Listening 2: Keynesianism
(To further your study, read the script of the interview with Kitson, MK p 174: Listening 1 – track 15 & Listening 2 – track 16)

7. HW:
1) Write a short text about internal theories of the business cycle.
Use the notes provided above, information and ideas from our textbook.
Use examples or illustrations.
Pick one of the following topic sentences as your starting point:
a) Internal theories look for the causes of the business cycle in the economic system itself.
b) Internal theories explain the business cycle in terms of factors which are internal to the economy.
c) Internal theories propose that the business cycle is caused by factors such as...
d) Internal theories look for the causes of the business cycle among factors which are internal to the economy.
e) Unlike external theories, which focus on factors outside economic activity, internal theory considers factors internal to the economy.
2) MK, p Reading 2
Read the text and give headings to paragraphs
Do the comprehension task (p 118)
GET READY TO TAKE PART IN THE DISCUSSION (questions listed on p 118)

8. Next time: a pop quiz! Topics: Procedure: Business meetings
Types of graphs, nouns and verbs used
The business cycle
Procedure:
Several different groups
10 minutes
To be collected, checked, graded and filed
Results – big session next week