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BELL RINGER 04.29.2015Write complete question and answer on your Bell Ringer form.
When do people mean when they use the phrase “roller coaster experience”?
ECONOMICSApril 29, 2015
Chapter 12: Gross Domestic Product and Growth
Section 12.2: Business Cycles
PHASES OF A BUSINESS CYCLE
In short, a business cycle has an up (period of expansion) followed by a down (period of contraction).
Usually, a business cycle is referring to macroeconomics, or the “big picture” of a nation’s economy.
12.2
PHASES OF A BUSINESS CYCLE
Four phases of a business cycle:expansion — measured by real GDPpeak — point at which real GDP stops risingcontraction — economic declinetrough — where the economy bottoms out
12.2
PHASES OF A BUSINESS CYCLE
During contraction, GDP is always falling, but other conditions may rise or fall, creating different types of economic instability:
recession — when real GDP falls for 6 straight months; can last 6-18 months; marked by rising unemployment (6-10%).
12.2
PHASES OF A BUSINESS CYCLE
During contraction, GDP is always falling, but other conditions may rise or fall, creating different types of economic instability:
depression — longer, depressed output; usually features high unemployment
12.2
PHASES OF A BUSINESS CYCLE
During contraction, GDP is always falling, but other conditions may rise or fall, creating different types of economic instability:
stagflation — “stagnant inflation”; decline in real GDP combined with a rising price level.
12.2
PHASES OF A BUSINESS CYCLE
While economists can identify economic cycles, they cannot predict how a cycle will behave or how long it will last.
12.2
WHAT KEEPS A BUSINESS CYCLE GOING?
Business investment helps keep economic expansion going, but cutting back on investment causes aggregate demand to fall.
Low interest rates increase borrowing which increases spending. High interest rates can cut spending, which can lead to a recession.
12.2
WHAT KEEPS A BUSINESS CYCLE GOING?
Consumer expectations is reflected in their spending.
External shocks (ex. drought or perfect growing season, outbreak of war, oil spills) can suddenly and dramatically affect aggregate supply.
12.2
BUSINESS CYCLE FORECASTING
Economists use a set of variables called leading indicators to try to forecast what the economy will do in the future.
Stock prices, interest rates, and new orders for capital goods are among those indicators.
12.2
CHECK QUESTION 12.2AWrite complete question and answer on your Bell Ringer form.
Why are consumer expectations so important to an economy’s performance?
BELL RINGER 04.30.2015Write complete question and answer on your Bell Ringer form.
What are some indicators you may have the flu?
If you have the flu, whose advise would you follow, the family doctor’s or Great Aunt Emma’s?
BUSINESS CYCLES IN AMERICAN HISTORY
The Great Depression (Hoover and FDR)
Between 1929 and 1933, GDP fell by 1/3 and unemployment rose to 25%.John Maynard Keynes, The General Theory of Employment, Interest, and Money
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
The Great Depression (Hoover and FDR)
FDR created Works Progress Administration and Civilian Conservation Corps to help people get back to work.Complete recovery did not occur until 1941 when the US entered WWII.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 1970s-1980s (Carter) OPEC launched oil embargo against US and raised prices 400%.This caused stagnation in US markets.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 1970s-1980s (Carter)Americans responded by exercising conservation in lifestyle, creating more fuel-efficient cars, and developing more of their own energy resources.Once US emerged as more self-sufficient, OPEC responded by lowering its prices.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 1970s-1980s (Carter)High interest rates caused real GDP to fall and unemployment rose to over 9%.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 2001 and 9/11 (G.W. Bush)
Throughout the Clinton presidency, GDP reflected record growth, some supported artificially by the government.Bush cut some programs that were keeping some energy companies up.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 2001 and 9/11 (G.W. Bush)
Collapse of Enron in 2001, beginning in June, caused a shock to energy market (its stock went from $90 to 61¢/share in 5 months).This shock spread to hedge fund accounts and money market funds.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 2001 and 9/11 (G.W. Bush)
The terrorist attacks of 9/11 created external shocks for the airline industries and the stock market.US economy fell into a recession again.
12.2
BUSINESS CYCLES IN AMERICAN HISTORY
Recession of 2001 and 9/11 (G.W. Bush)
As the war on terror progressed, the economy slowly recovered to a point.Negative public opinion about the war on terror impacted the economy again, influencing a decline at the end of Bush’s presidency.
12.2
LESSONS FROM US ECONOMIC HISTORY
There is no such thing as a continually growing economy. A national economy will experience peaks and troughs.
There is always the possibility of external shocks.
12.2
LESSONS FROM US ECONOMIC HISTORY
Recessions can hit no matter who’s in charge.
There will always be a need for the Federal Reserve to be actively involved in our nation’s economy.
12.2
CHECK QUESTION 12.2BWrite complete question and answer on your Bell Ringer form.
How does the phrase “Whatever gets you there is what you have to keep doing to stay there” reflect the conditions that led up to the recession of 2001?
