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Objectives

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. Objectives.

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Objectives

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  1. 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.

  2. 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.

  3. expansion contraction business cycle upward spiral downward spiral prosperity recession depression recovery Marketing Terms

  4. The status of a market economy goes up and down, like a roller coaster

  5. Market EconomyDynamics • A market economy is either • growing or • slowing List some signs of economic growth.List some signs of economic slowdown.

  6. Market EconomyDynamics • Expansion • period of economic growth • prosperity • economic good times • Contraction • period of economic slowdown • hardship • economic bad times

  7. Market EconomyDynamics • Periods of expansion • alternate with • periods of contraction • This alternation • of economic expansion and contraction • is called the business cycle Expansion Contraction Expansion Contraction

  8. Economic Spirals • All parts of an economy are interconnected • A change in one part • can cause a change in another part

  9. Economic Spirals Expansion • Upward spiral • When one part of the economy does well • it causes other parts of the economy • to do well Workers buy more Workers earn more Company earns more Sales up Productivity up

  10. Economic Spirals • Downward spiral • When one part of the economy does poorly • it causes other parts of the economy • to do poorly Productivity down Sales down Company earns less Workers earn less Workers buy less Contraction

  11. 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

  12. Business Cycle Peak Prosperity Recovery Recession Expansion Contraction Trough Trough GDP Time

  13. How is the graph of a business cyclelike a roller coaster?

  14. 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

  15. The Business Cycle • The high and low points on a graph help identify the three phases in each business cycle • prosperity • recession • recovery

  16. Business Cycle Prosperity Recovery GDP Recession Time

  17. Prosperity • Prosperity • occurs around the peak of the business cycle • economic good times • people doing well What happens economicallyduring prosperity?

  18. 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

  19. Recession • Recession • occurs on the down slope of the business cycle • economic hard times • people doing poorly What happens economically during recession?

  20. 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

  21. Depression • Depression • economic contraction • severe • long lasting • causes widespread economic hardship • Great Depression • 1929 to 1941

  22. Recovery • Recovery • occurs after a recession • occurs on the up slope of a business cycle • economy getting better • people starting to do better

  23. 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

  24. 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

  25. * Sometimes before and during a depression, inflation is very, very high.

  26. 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?

  27. 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.

  28. 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.

  29. 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.

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