Chapter 19: Section 1

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Chapter 19: Section 1. Measuring the ECONOMY. The Business cycle. Phase 1. General prosperity economy going up People buying more goods and services Businesses producing more goods and services and hiring more employees. Phase 2. Boom period economic activity at peak - PowerPoint PPT Presentation


Chapter 19: Section 1

Chapter 19: Section 1Measuring the ECONOMYThe Business cyclePhase 1General prosperity economy going upPeople buying more goods and servicesBusinesses producing more goods and services and hiring more employees

Phase 2Boom period economic activity at peakBusinesses working and selling at full capacity

Phase 3Economy starting to slow downPeople buying fewer goods and servicesBusinesses cutting back production and laying off workers; some forced out of business

Phase 4RECESSIONProduction at lowest pointHigh unemploymentReduced spending on goods and servicesA recession is when your neighbor loses your job. A depression is when YOU lose your job. A recovery is when Jimmy Carter loses his job. Ronald ReaganPhase 4.oh no (DEPRESSION)1930s

FDR and the NEW DEALFiscal PolicyThe way the government taxes citizens and spends moneyEXAMPLE: Government may spend money to try to keep the economy and businesses going.Bail out plans under OBAMAGoal: get demand up so businesses hire peopleEXAMPLE: Government may cut taxesBush tax cutsGoal: stimulates production by giving people more money to SPEND on goods and servicesMonetary PolicyThe way government regulates the amount of money in circulationControlled by the Federal Reserve System (the Fed)Acts as a bank for the banksCan raise and lower interest rates

WARNING: printing too much money makes our money worth less and prices go upGross Domestic Product (GDP)Total value, in dollars, of all the final goods and services produced within the nation each yearDoes not include goods or services produced by American citizens or American-owned companies outside the United StatesInflationGeneral rise in the prices of goods and servicesPrices go UP = Standard of Living goes DOWNWe hope if this happens wages also go up. BUT that is not always the caseCONTROLLING INFLATION:Higher interest rates makes it more expensive to borrow money and puts a damper on activityGovt may reduce the money in circulation by raising taxes and cutting its own spendingBusinesses can increase productivity (produce more goods an services) so that demand/prices goes downConsumers can save more money and spend lessPROBLEMS w/ CONTROLLING INFLATIONMay increase unemploymentLess people buy thingsGOVERNMENT BUDGET GAMES