1. Unit 2: Macro Measures and International Trade 1

2. THE BUSINESS CYCLE 2

3. The national economy fluctuates resulting in periods of boom and bust. A Recession is 6 month period of decline in Real GDP. (If really bad…then depression) InflationUnemployment Full employment 3

4. 4 Business Cycle a period of macroecnomic expansion followed by a contraction; represents changes in real output Real output - how many goods and services we are actually producing

5. Phases of the Business Cycle Expansion- a period of rising Real GDP Peak- Real GDP stops rising Contraction – a period of falling Real GDP –Recession –a contraction that lasts 6- 18 months –Depression – an especially long and severe contraction Trough – Real GDP stops falling Recovery (Expansion) 5

6. 1.Why is the business cycle like a roller coaster? 2.How do wars affect the economy? 200 Years of the Business Cycle 6

7. The Business Cycle Why does the economy fluctuate? Retailer and Producers send misleading information about consumer demand. Advances in tech, productivity, or resources. Outside influences (wars, supply shocks, panic). Macroeconomics measures these fluctuations and guides policies to keep the economy stable. The government has the responsibility to: Promote long-term growth. Prevent unemployment (resulting from a bust). Prevent inflation (resulting form a boom). Who cares? 7

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9. 2010 GDP Growth Rate= 2.8%

10. What is Economic Growth? 1.An increase in real GDP over time 2.An increase in real GDP per capita over time (usually used to determine standard of living) Why is economic growth the goal of every society? Provides better goods and services Increases wages and standard of living Allows more leisure time Economy can better meet wants 10

11. Connection to PPC The same information shown on the business cycle can be shown on a production possibilities curve. 1.Full employment 2.Unemployment 3.Inflation The shifters of the PPC affect GDP 1.Change in quantity/quality of resources 2.Changes in technology 3.Changes in trade 11