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The Business Cycle. Economics Mr. Way 2/9/12. What is the “Business cycle?”. The Business Cycle is a pattern of growth and recession exhibited by most modern economies. Specifically, it means that some years GDP will increase and other years GDP will decrease
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The Business Cycle Economics Mr. Way 2/9/12
What is the “Business cycle?” • The Business Cycle is a pattern of growth and recession exhibited by most modern economies. • Specifically, it means that some years GDP will increase and other years GDP will decrease • An increase is called an economic “boom” • A decrease is called an economic “bust” or “recession”
What is the pattern? • The business cycle takes several years • It is generally characterized by a few years of increasing growth followed by a few years of recession. • Overall, GDP rises over time – that is, the growth is almost always a higher total than the recession.
Why do we care? • The business cycle has important ramifications for everybody in a society. • During a boom, employment will be high, wages will be high, (prices will rise) and government programs will be easy to afford • During a bust, employment will fall, wages will fall, hours people work will fall, and government programs will become very expensive
What causes the cycle? • There is much dispute over this question, especially on TV right now. • Most say that the cycle is natural; sometimes people want less stuff in a given year because of random coincidental fluctuations • Others, like Ron Paul, argue that the business cycle is caused by government policies that build up debt in boom times, forcing us to pay back those debts later causing recessions.
