Measuring the Economy & The Business Cycle

1. Measuring the Economy & The Business Cycle

2. Economic Indicators Gross Domestic Product • Total dollar value of goods and services produced in a country during one year.

5. Economic Indicators CPI – Consumer Price Index The price of a selection of goods and services purchased by a “typical consumer”.

6. Economic Indicators Inflation A general rise in the level of prices of goods and services over a period of time. –Change in CPI

7. Economic Indicators Unemployment Rate • Percentage of the population without a job but looking for work. • Is a stay at home Mom considered part of the unemployment rate?

8. 4 Types of Unemployment • Frictional: • People who have quit work • They didn’t like the job, boss, working conditions and they haven’t found a new job • Structural: • caused by the restructuring of firms or mismatch b/ skills of job seekers and the requirements (location) of available jobs • Example: coal miners in an area where mines are closed • Cyclical: occurs b/c of a recession • Most serious type of unemployment • Seasonal: Demand for labor varies over the year • Example: harvesting of crops

9. The Business Cycle

10. Expansion Period of economic growth GDP Increases Unemployment generally decreases Inflation generally increases

11. Peak Highest level of economic activity GDP stops increasing Unemployment stops decreases Inflation stops increases and may start decreasing

12. Contraction Period of economic decline GDP decreases Unemployment increases Inflation generally decreasing

13. Trough Lowest level of economic activity GDP stops decreases to lowest levels Unemployment is at its highest levels Inflation stops decreasing and may start increasing

14. Business Cycle Expansion Expansion: Rising prices, GDP rises, jobs growth

15. Business Cycle Peak Expansion Peak: A period of prosperity, growth stops

16. Business Cycle Peak Contraction Inflation Contraction: Unemployment rises, consumer spending low, profits low- 6m to a year

17. Business Cycle Peak Recession Inflation Trough Trough: Long term major slowdown, unemployment soars, firms fail.

18. Recession vs Depression Recession: Real GDP must fall for at least 6 months in a row Depression: Prolonged recession (6-18 months long) ***We attempt to keep the business cycle STABLE. Periods of extreme growth and decline are NOT desirable!

19. Business Cycle Poster Create a poster illustrating each phase of the business cycle. Each phase should include: Events that might occur Mood of consumers & businesses Pictures