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What affects business cycles??

What affects business cycles??. Business investments. As economy is expanding, a business will invest in new technology and resources to increase production. This creates jobs and output---increasing GDP.

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What affects business cycles??

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  1. What affects business cycles??

  2. Business investments • As economy is expanding, a business will invest in new technology and resources to increase production. • This creates jobs and output---increasing GDP. • Eventually they will stop investing, demand for product will fall, and contraction within the business will occur.

  3. Interest Rates and Credit • When interest rates are low, consumers and businesses are more likely to borrow money to buy or produce items. • High interest rates = reduced borrowing for investment, consumption, and production.

  4. Consumer Expectations • Fear of weakening economy will cause less spending/investing. • Reduced spending from consumers causes contraction within businesses because demand has lowered. • All this lowers the nation’s GDP.

  5. External Shocks • Negative shocks: disruptions of oil supply, wars, droughts • Positive Shocks: discovery of new oil supply, nice growing season • Both types come without much warning!!

  6. The Great Depression • Stock Market dives in 1929—President Hoover does little about it. • Sustained contraction led economists to believe that intervention was necessary • Franklin Delano Roosevelt was elected and implemented many governmental programs aimed to aid the economy.

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