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Objectives
Give an example that shows how a change in one part of the economy can cause a change in another part.
List the three phases of the business cycle.
Make a graph of a business cycle and label the phases.
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Objectives
Describe economic conditions during each phase of the business cycle.
Describe the level of GDP and unemployment rate during each phase of the cycle.
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Marketing Terms
expansion contraction business cycle upward spiral downward spiral
prosperity recession depression recovery
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The status of a market economy goes up and down, like a roller coaster
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Market EconomyDynamics
A market economy is either growing or slowing
List some signs of economic growth.List some signs of economic slowdown.
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Market EconomyDynamics
Expansion period of economic growth prosperity economic good times
Contraction period of economic slowdown hardship economic bad times
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Market EconomyDynamics
Periods of expansion alternate with
– periods of contraction
This alternation of economic expansion and contraction is called the business cycle
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Economic Spirals
All parts of an economy are interconnected
A change in one part can cause a
change in another part
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Economic Spirals
Upward spiral When one part
of the economy does well
it causes other parts of the economy– to do well Productivity up
Expansion
Sales up
Company earns more
Workers buy more
Workers earn more
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Economic Spirals
Downward spiral When one part
of the economy does poorly
it causes other parts of the economy– to do poorly
Productivity down
Contraction
Sales down
Company earns less
Workers buy less
Workers earn less
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The Business Cycle
To understand business cycles economists make graphs
They plot GDP or percent change in GDP
– over time
Even though each business cycle is different each has the same basic shape
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Business Cycle
Time
GD
P
Expansion
Contraction
Peak
TroughTrough
Recove
ryR
ecessionProsperity
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How is the graph of a business cyclelike a roller coaster?
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The Business Cycle
Every business cycle graph has one peak (high point) one trough (low point)
Every business cycle graph has one period of expansion one period of contraction
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The Business Cycle
The high and low points on a graph help identify the three phases in each business cycle prosperity recession recovery
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Business Cycle
Time
GD
P
Recove
ryR
ecessionProsperity
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Prosperity
Prosperity occurs around the
peak of the business cycle
economic good times people doing well
What happens economicallyduring prosperity?
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Prosperity
During a period of prosperity consumers buy more retail sales rise and inventories fall production increases businesses hire more workers
Economic indicators GDP rises unemployment is low CPI and inflation rise only a little
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Recession
Recession occurs on the down
slope of the business cycle
economic hard times people doing poorly
What happens economically during recession?
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Recession
During a period of recession consumers buy less retail sales fall and inventory rises production slows businesses fire workers
Economic indicators GDP falls unemployment rises
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Depression
Depression economic
contraction severe long lasting causes widespread
economic hardship
Great Depression 1929 to 1941
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Recovery
Recovery occurs after a
recession occurs on the up
slope of a business cycle
economy getting better
people starting to do better
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Recovery
During a recovery period consumers start buying more retail sales rise and inventories fall businesses start producing more businesses hire more people
Economic indicators GDP rises unemployment starts falling
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Business Cycle and Economic Indicators
Each phase of the business cycle has typical economic indicators
Economists and marketers study economic indicators
– to predict what will happen in the economy
– to help make good business decisions
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* Sometimes before and during a depression, inflation is very, very high.
Business Cycle and Economic IndicatorsProsperity
before the peak
Recession contraction
Depression severe
contraction
Recovery expansion
GDP
Unemployment Rate
CPI/Inflation * Stock Market
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Review
What is the difference between expansion and contraction in the economy?
What is a business cycle? Describe the three phases in a
business cycle. What is the impact of economic
interconnectedness?
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Glossary
business cycle. Alternating periods of expansion and contraction in the economy.
contraction. Period of economic slowdown.
depression. Economic slowdown that is very severe and lasts a long time.
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Glossary
downward spiral. Process that starts moving downward slowly, and then starts moving faster and faster downward.
expansion. Period of economic growth. prosperity. Economic good times, when
people are doing well financially.
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Glossary
recession. Period of economic contraction.
recovery. Period after a recession during which the economy is expanding.
upward spiral. Process that starts moving upward slowly, and then increases its upward movement faster and faster.