The Business Cycle

1. The Business Cycle MK, U 23

2. trɒf PRONUNCIATION /trɒf/

3. trɒf PRONUNCIATION /trɒf/ The Business Cycle the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time (www.investopedia.com) Recur – come again, happen again Fluctuate – change ,vary, oscillate Output - production

4. The Business Cycle → MK, p 114 Lead-in discussion Vocabulary 1

5. Viewing/listeningPlease watch the video: http://www.youtube.com/watch?v=EMHkiKxtlvw and make notes to capture the most important information: “a backwards rollercoaster” 3 indicators of recession by NBER definition of recession 4 phases economic trends in recession V-shaped recession v. U-shaped recession

6. NBER = National Bureau of Economic Research • 3 indicators of recession by NBER: • GDP = gross domestic product • employment • wholesale – retail trade • definition of recession: • 2 or more consequtive quarters of negative economic growth • 4 phases: • Peak • Recession • Trough • Expansion (recovery)

7. economic trends in recession: • C_ _ _ _mer spending slows • Inv_ _ _ _ ries build up • Companies r _ _ _ _ e output and layoff employees • Unemployment r _ _ _ s • economic trends during a recovery • Activity a _ _ _ _ _ _ _ _ es • Consumer spending i _ _ _ _ _ _ s • New orders are placed • Companies increase output and a _ _ employees • Unemployment d _ _ _ _ _ _ s

8. Collocations: recession v. expansion economic activity slows down consumers spend less money businesses make fewer sales inventories build up companies earn less revenue fewer orders are placed businesses cut back on output unemployment rate goes up businesses reduce the number of people on payrolls eventually it reaches a trough economic activity picks up again sales improve excess inventories are used up new orders are placed production is ramped up again job opportunities improve unemployment rate comes down eventuallyit tops out

9. Collocations: recession (R) or expansion (E)?Match! E - economic activity picks up again ? businesses make fewer sales ? excess inventories are used up ? companies earn less revenue ? new orders are placed ? production is ramped up again ? job opportunities improve ? businesses cut back on output ? unemployment rate goes up ? eventually* it reaches a trough. ? eventually it tops out ? consumers spend less money ? sales improve * at an unspecified later time, in the end

10. MATCH V-SHAPED OR U-SHAPED RECESSION? slowdown lingers* takes a long time for activity to pick up again ? * to remain existent although often waning in strength, importance, or influence begins abruptly reaches a trough quickly recovers quickly ?

11. Business Cycle, cont.

12. Revision: Recession or Expansion? E: economic activity p_ _ _ _ u_ again R: businesses make f _ _ _ _ sales E: excess inventories are u _ _ _ up R: companies earn l _ _ _ r _ _ _ _ _ _ E: new orders are placed E: production is r _ _ _ _ _ up again E: job opportunities i_ _ _ _ _ _ R: businesses c_ _ b_ _ _ on output R: unemployment rate goes _ _ R: eventually* it reaches a _ _ _ _ _ _. E: eventually it tops out R: consumers spend _ _ _ _ money E: sales improve * at an unspecified later time, in the end

13. Collocations: recession or expansion? E: economic activity picks up again R: businesses make fewer sales E: excess inventories are used up R: companies earn less revenue E: new orders are placed E: production is ramped up again E: job opportunities improve R: businesses cut back on output R: unemployment rate goes up R: eventually* it reaches a trough. E: eventually it tops out R: consumers spend less money E: sales improve * at an unspecified later time, in the end

14. READING(MK, p. 114,115) What happens to GDP in a business cycle? What happens during an upturn? (What tends to rise?) What is a boom? What happens during a downturn? (What falls?) What is the difference between a recession and a depression? (Synonyms?) What is the most probable cause of the business cycle? How do people behave in good times? And in bad times? How is investment connected with demand? What is creative destruction? Team work: Comprehension

15. Comprehension • A downturn begins when ... ... the demand for goods and services declines. • People spend, and borrow money, when... ... economic times are good and they feel confident about the future. • People tend to spend less when... ... they are afraid of losing their jobs / becoming unemployed. • When interes rates rise... ... people have to pay more on their mortgage or rent (and so consume less). • Companies only invest while ... ... consumption is increasing. • Creative destruction means that ... ... innovations destroy established companies or industries.

16. Causes of the business cycle: internal & externalHow is internal theory different from external theory? • Internal (endogenous) theories: beliefs about the future interest rates wages and salaries ↓ consumption (demand = output) ↓ investments (grow) • External (exogenous) theories: technological, political and demographic changes

17. Why are economies plagued by recurrent business cycles?

18. Listening 1: Consumption and the business cycle Listening 2: Keynesianism

19. HOMEWORK – Mon/Tue MK, p 116 Vocabulary 2 (1): Fiscal and monetary policy MK pp 117, 118 Reading 2: Keynesianism and Monetarism - read and allocate headings (A – E) - match up the half-sentences (p 118)