ECONOMIC VITAL SIGNS

DIAGNOSING THE HEALTH OF OUR NATION’S ECONOMIC SYSTEM

THREE MAIN ECONOMIC INDICATORS

REAL GROSS DOMESTIC PRODUCT (GDP)

THE INFLATION RATE

THE UNEMPLOYMENT RATE

MEASURES THE OUTPUT OF FINAL GOODS AND SERVICES IN CONSTANT DOLLARS

MEASURES HOW RAPIDLY THE OVERALL NATIONAL PRICE LEVEL IS CHANGING

MEASURES THE PERCENTAGE OF THE LABOR FORCE THAT WISHES TO WORK BUT ARE JOBLESS.

Four Phases of the Business Cycle

PEAK

Level of

busi

ness

act

ivit

y

TimeTrough

TROUGH

Expa

nsio

n

GROWTH TREND

Expa

nsio

n

PEAK

Contraction

Contraction

FOUR PHASES OF THE BUSINESS CYCLE

EXPANSION: GDP IS GROWING, CONSUMERS ARE SHOPPING, EMPLOYMENT IS IMPROVING AND PRICES ARE RISING

PEAK: HIGH POINT WHERE GDP STOPS GROWING, PRICES ARE AT THEIR HIGHEST AND UNEMPLOYED WORKERS ARE HARD TO FIND

U.S. ECONOMIC GROWTH PER PERSON

FOUR PHASES OF THE BUSINESS CYCLE

CONTRACTION: GDP IS SHRINKING, CONSUMERS ARE NOT SHOPPING, PRICES ARE FALLING AND WORKERS ARE LOSING JOBS

TROUGH: DEMAND, PRODUCTION AND UNEMPLOYMENT ARE AT THEIR LOWEST POINT

PEAKS AND TROUGHS ARE CORNERS

FIVE CONSECUTIVE QUARTERS OFNEGATIVE GDP GROWTH IN 2008-09

THE SHAPE OF THE BUSINESS CYCLE

“V” SHAPED: MOST DESIREABLE, INDICATES A QUICK REBOUND TO RECOVERY

“U” SHAPED: ECONOMY CONTRACTS BUT STRUGGLES TO RECOVER EXPERIENCING ANEMIC GROWTH FOR A WHILE

“W” SHAPED: INDICATES A DOUBLE DIP RECESSION WHERE RECOVERY IS FLEETING BEFORE A SECOND CONTRACTION

“L” SHAPED: THE GREAT DEPRESSION, YEARS OF A STAGNANT ECONOMY WITH NO RESPONSE TO REMEDIES.

WHAT CAUSES THE BUSINESS CYCLE TO TURN A CORNER?

EXTERNAL EVENTS LIKE INNOVATIONS, WARS, OR POLITICAL EVENTS

WHAT CAUSES THE BUSINESS CYCLE TO TURN A CORNER?

GOVERNMENT REGULATION"liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system.” Consumer Confidence plummeted and the winds of contraction accelerated to unprecedented speeds.

On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”“Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”