Lesson 7: The Business Cycle PDF

Starter: Guess the lesson… Lesson 7: The Business Cycle Unit 1: Fundamentals of Economics Lesson 7. The Business Cycle Lesson Objective:  To learn about the business cycle. Lesson Outcomes:  Draw and interpret the business cycle.  Describe and explain the different components of the business...

Starter: Guess the lesson… Lesson 7: The Business Cycle Unit 1: Fundamentals of Economics Lesson 7. The Business Cycle Lesson Objective:  To learn about the business cycle. Lesson Outcomes:  Draw and interpret the business cycle.  Describe and explain the different components of the business cycle.  Interpret different situations and link them to the business cycle.  This is used to The Business Cycle describe the recurring periods of increased and decreased economic activity, or expansions and contractions. The business cycle is characterized by four Task 1: Draw stages: the business recession, cycle out trough, onto your expansion, worksheet and peak. The Four Stages of the Business Cycle  Recession (two consecutive quarters of GDP): The economy slows down. There is a decline in consumer purchasing, an increase in unemployment, and businesses contract or close.  Trough: Production and unemployment reach their lowest levels. The economy completes the recession and turns towards prosperity.  Expansion: The economy begins to grow again. Employment, wages, production, and profits expand.  Peak: Top of the business cycle. The economy stops expanding and begins contracting. The Business Cycle Recession  The economy slows down  Fewer taxes are collected, Which means the government has less capital to provide social services  Key economic indicators: exports and construction contracts.  The Great Depression  Began in 1929  Over-speculation in the stock market, leading to inflated prices  Heavy reliance on debt to finance stock purchases  Banking panics and failures, causing people to lose confidence in the banking system Great Depression  How did the Great Depression affect people in the U.S. compared to other countries? What were some of the major problems that arose during this time?  Massive unemployment  Severe poverty and homelessness; many people relied on breadlines for food. Bank failures led to loss of savings for many individuals. Decline in consumer spending caused businesses to close, worsening the economic situation. The Business Cycle Trough (Slump)  The bottom of the cycle  Production and employment reach their lowest level  A sustained trough is known as a depression The Business Cycle Expansion  Sometimes referred to as recovery or prosperity.  The economy is beginning to grow again.  Employment, wages, production, and profits all expand.  Investment is strong The Business Cycle Peak (Boom)  This is the top of the business cycle.  The economy stops expanding and begins contracting Task 3:  Now complete Task 3 on the worksheet by defining the key terms. Economic indicators Three types of economic indicators: Leading: Adjust before the economy experiences a change and predict where the economy is going. Housing starts are an example. Lagging: Do not adjust until after the economy has experienced a change. Unemployment rate is an example. Coincident: Move in conjunction with the business cycle. International trade is an example. Google question  Which point of the business cycle is Hong Kong in right now? What are some of the indicators you can observe. The Business Cycle – Living Graph Activity Task 4. To test your knowledge of the business cycle, complete the Living Graph Activity. Be prepared to discuss your responses with the class. Review: The Business Cycle – Living Graph Activity The Business Cycle The Business Cycle: Answers C, H, I, S, W A, D, G, M, P, Q, Y, Z F, N, O B, E, J, K, L, R, T, U, V, X Causes of economic cycle 1. Monetary policy – interest rate, money supply 2. Fiscal policy – government spending, taxation 3. Consumer confidence 4. Technological advancement 5. Global events 6. Market Speculation 7. Demographic changes