The Business Cycle

Measuring Economic Activity

UNIT 1.04

Recurrent periods during which the nation’s economy moves in and out of recession and

recovery phases

Major ups and downs of economy

Short Term (2-3 years)

Long Term (50-60 years)

THE BUSINESS CYCLE

Peaks

Growing economy

Increasing investor confidence

Anticipation of future price increases

BULL MARKET

Troughs

General decline in the stock market over a period of time

Transition from high investor optimism to widespread investor fear and pessimism price decline of 20% or more over at least a two-month

period sometimes referred to as "The Heifer Market"

BEAR MARKET

A phase of the business cycle where most people who want to work are working and businesses produce

goods & services in record numbers.

Economic Growth1945-1973

$200B in war bonds matured GI Bill financed well-educated work force Middle class swelled Increase in GDP and Productivity

PROSPERITY

A period where demand begins to decline, businesses lower production of goods & services, unemployment

begins to rise, and GDP growth slows for several quarters

Reduced Economic Activity GDP negative for 2 or more quarters 1.5% rise in Unemployment in 12 months

Late 2000s Collapse of the housing market Bank failures High Unemployment Low Consumer Confidence Escalating Debt Inflation Rising gas and food prices

RECESSION

A phase marked by high unemployment, weak sales of goods & services, and business failures

Sustained, long-term economic downturnLarge increases in UnemploymentReduced credit availabilityLarge number of bankruptciesDeflationBank failures

DEPRESSION

1929 – late 1930sStock Market Crash October 29 th

“Black Tuesday”Massive Bank FailuresMillions lost jobsGlobal in scale

THE GREAT DEPRESSION

Economic Indicators United States

Great Britain

France

Germany

Industrial Production -46% -23% -24% -41%

Wholesale Prices -32% -33% -34% -29%

Foreign Trade -70% -60% -54% -61%

Unemployment +607% +129% +214%

+232%

A phase of the business cycle in which unemployment begins to decrease, demand for goods & services

increases, and GDP begins to rise again

High levels of growth following a RecessionGovernment stimulus packages

RECOVERY

What phase is the US in now?

Gross Domestic Product (GDP)

Inflation

Consumer Price Index (CPI)

Productivity

Unemployment

Debt

Consumer Confidence

ECONOMIC INDICATORS

The total value of all final goods & services produced in a country in one year

GDP = private consumption + gross investment + government spending +(exports – imports)

Often reflects a country’s Standard of living

GROSS DOMESTIC PRODUCT

Top 10 largest world economies

Trading Economics

STRENGTH OF US ECONOMY TO OTHER COUNTRIES

Gross Domestic Product in $ trillion

World Rank

Country GDP

1 United States 17.418

2 China 10.380

3 Japan 4.616

4 Germany 3.859

5 United Kingdom 2.945

6 France 2.846

7 Brazil 2.353

8 Italy 2.147

9 India 2.049

10 Russia 1.857

An increase in the general price level

When prices increase, each unit of currency buys fewer goods & services

Caused by excessive growth of the money supply

INFLATION

Shows change in the average prices of goods & services bought by consumers over a period of time

Related to inflationShows how much

your money can buy

CONSUMER PRICE INDEX

The quantity of a good an average worker produces in an hour

Measure of output from a production processGDP per hour worked

PRODUCTIVITY

State of being without paid work, though willing and able to work and actively seeking work

Proportion of labor force that is without paid work

UNEMPLOYMENT

09/20155.1%

money borrowed by the federal government of the US at any one time through the issue of securities by the

Treasury and other federal government agencies

Deficit – the diff erence between the total amount spent by Congress and the amount received by the IRS Was $17.7T last year, this year it’s $18.4 TRILLION US National Debt Clock

Surplus – revenues exceed spendingBalanced Budget – revenues =

spending President Clinton, 1998-2001 ?

DEBT