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BUSINESS CYCLE

BUSINESS CYCLE. Phases of the Business Cycle Recovery/Expansion – general increase in business activity. Peak/Boom – economy operating at high level. High employment, etc… Contraction – general decline in business activity. Trough – economy at lowest point, will begin expansion.

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BUSINESS CYCLE

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  1. BUSINESS CYCLE Phases of the Business Cycle • Recovery/Expansion – general increase in business activity. • Peak/Boom – economy operating at high level. High employment, etc… • Contraction – general decline in business activity. • Trough – economy at lowest point, will begin expansion. • Recession – economy in decline for a period of 6 months. • Depression – extended period of contraction categorized by millions out of work and the collapse of major institutions. Economic Indicators Consumer Price Index Consumer Confidence Money Supply Durable goods GDP New Businesses New Plants & Equipment Economic Indicators Total Inventories Unemployment Stock Prices Personal Income Delayed Deliveries Building Permits Manufacturing Labor Hours

  2. ECONOMIC PROBLEMS INFLATION • During a period of inflation, prices of almost everything keep rising. Inflation is a natural occurrence, but high rates of inflation can cause a decline in business activity. • Inflation is caused by an increase in the money supply. Money in circulation, or being spent. RECESSION • During a period of recession, consumers are not spending money, thus business profits and productivity slow down. Periods of recession lead to higher rates of unemployment.

  3. Causes of the Business Cycle • Business Investment – business decisions • If businesses anticipate high sales in the future, they will likely invest; contributes to expansion • If businesses anticipate a lower sales, they will reduce production; slows growth • Government Activity • Policies on taxing and spending (fiscal policy) • Control over the money supply – Federal Reserve (monetary policy) • External Factors • War – increased government spending • Discovery/Loss of raw materials

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