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The Business Cycle

The Business Cycle. The Business Cycle. Worksheet. Chapter 12 Section 2 Use the book to complete the worksheet. Four things that affect the Business Cycle. 1. business investment 2. interest rates and credit 3. consumer expectations 4. external shocks. Definitions.

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The Business Cycle

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  1. The Business Cycle

  2. The Business Cycle

  3. Worksheet • Chapter 12 Section 2 • Use the book to complete the worksheet.

  4. Four things that affect the Business Cycle • 1. business investment • 2. interest rates and credit • 3. consumer expectations • 4. external shocks

  5. Definitions • Real GDP per capita - Real GDP divided by the total population • labor productivity - the amount of output produced per worker • Saving – income that is not used for consumption • savings rate – the percentage of money income that is saved

  6. American Savings Rate

  7. The paradox of thrift What happens to an economy if everyone became savers at the same time?

  8. Capital Deepening • capital deepening - process of increasing the amount of capital per worker • It’s been found that capital deepening increases GDP growth. • Higher savings rates leads to higher investment which can lead to capital deepening

  9. Three things that can affect capital deepening • population • government taxes - bad: used to finance a war, pork spending good: used to invest in infrastructure • Foreign imports good or bad? Good: if the imports are used as investments or improvements

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