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The Business Cycle

The Business Cycle. MK, U 23. trɒf. PRONUNCIATION /trɒf/. trɒf. PRONUNCIATION /trɒf/. The Business Cycle t he recurring and fluctuating levels of economic activity that an economy experiences over a long period of time (www.investopedia.com).

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The Business Cycle

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  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. Divide into two groups downturn peak downswing contraction trough upturn expansion recession recovery depression slump boom

  6. economic ______ vs. economic ______ contraction depression / slump trough recession downturn /downswing upturn boom expansion peak recovery Match the opposites, pls!

  7. economic decline vs. economic growth depression / slump recession downturn /downswing contraction trough boom recovery upturn expansion peak

  8. Viewing/listeninghttp://www.youtube.com/watch?v=EMHkiKxtlvw 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

  9. 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)

  10. economic trends in recession: • Consumer spending slows • Inventories build up • Companies reduce output and layoff employees • Unemployment rises • economic trends during a recovery • Activity accelerates • Consumer spending improves • New orders are placed • Companies increase output and add employees • Unemployment declines

  11. 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

  12. Collocations: recession or expansion? 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

  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. 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

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

  16. 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

  17. 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

  18. Why are economies plagued by recurrent business cycles? You might want to read what Kitson says about Keynsianism: (Listening 1 & 2, p 117, script p 174)

  19. HOMEWORK Reading 2, MK pp 117, 118: Keynesianism and Monetarism - do vocabulary 2: Fiscal and monetary policy, p 116 - read and allocate headings (A – E) - match up the half-sentences (p 118) Discussion: answer the questions to prepare for discussing Keynesianism & Monetarism

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