1 / 9

The Business Cycle

The Business Cycle. Business Cycle. Covers periods of alternating economic growth and recession n (negative growth) as measured in changes in GDP ups and downs of the economy Duration varies No two cycles will be exactly the same

walker
Download Presentation

The Business Cycle

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Business Cycle

  2. Business Cycle Covers periods of alternating economic growth and recession n (negative growth) as measured in changes in GDP ups and downs of the economy Duration varies No two cycles will be exactly the same Results because of fluctuations resulting in changes from economic growth and patterns of consumption

  3. Dynamics of the Business Cycle Expansion Period • Consumer spending increases and production increases (prosperity cycle) • Increased demand = higher production, more jobs, increased income, greater income, greater consumption which equals increased demand • Visual?

  4. Will this always be the case? • The economy will peak and trend will reverse Reasons? • Consumers have exhausted purchasing patterns (expensive durable goods do not have to be replaced as often) • Consumers wants are satisfied • Event such as Crash of 29 or 9/11 Begin visual

  5. Interest rate increase = less credit for consumer goods Severe inflation occurs Higher levels of inflation reduce real income of consumers Demand begins to decline Continue Visual

  6. Firms are overstocked with goods = cut back on production Production cutbacks = loss of jobs = lower income Decreased income leads to decrease in demand Reduced revenue for firms Recession = negative GDP growth and contraction of economy lasts longer than 2 quarters (6 months)

  7. Characteristics Increased levels of unemployment Low or negative levels of GDP growth Low levels of inflation or even deflation

  8. Often influenced heavily by consumer psychology Ie. Media reports layoffs = reduced levels of consumer spending Savings as a “cushion” Cut back on purchase of “Big Ticket” items Changes make recessionary period worse Prolonged recession may lead to depression Complete Visual

  9. What’s next? Downturn will eventually stop and spending increases Ie. Prices drop so low consumers want to spend again Some purchases can only be prolonged for son long (car, appliance, clothes) High inventories of firms begin to dwindle and in most cases, production increases again

More Related