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1. Video Clip What is a recession? What is the meaning of this cartoon? How are Americans hurt by a recession? What do you think causes a recession?

2. The Business Cycle Essential Questions: How can leading, lagging, and coincident indicators be used to predict and verify the phases of the business cycle?

3. Recession: • What is it? • “A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”

4. Recession: • What is it? • “A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters” • How are Americans hurt? • During a recession, many Americans lose their jobs, others have their hours cut, others live in fear that they will lose their jobs. • Generally, stock prices drop, so many Americans lose wealth. Their 401(k)s and IRAs lose value.

5. Recession: • What is it? • “A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters” • How are Americans hurt? • During a recession, many Americans lose their jobs, others have their hours cut, others live in fear that they will lose their jobs. • Generally, stock prices drop, so many Americans lose wealth. Their 401(k)s and IRAs lose value. • What causes a recession? • A lack of spending causes a recession. When people buys less stuff, less is produced. Remember that GDP measures productivity, and recession occurs when GDP falls.

6. Recession – a period during which real GDP declines for two quarters in a row Trough – the turnaround point where real GDP stops going down Expansion – a period of recovery from a recession, real GDP increases Peak – the point at which real GDP stops going up Recessions in the United States http://www.nber.org/cycles/cyclesmain.html

7. The Great Recession Began in December 2007 and Ended June 2009. http://www.nber.org/cycles/cyclesmain.html

8. http://www.nber.org/cycles/cyclesmain.html

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13. http://eyeonhousing.org/2014/05/jobs-created-in-the-u-s-when-a-home-is-built/http://eyeonhousing.org/2014/05/jobs-created-in-the-u-s-when-a-home-is-built/ http://www.realtor.org/topics/home-ownership-matters/jobs-impact-of-an-existing-home-purchase

17. Capital Expenditures Businesses expect future sales to increase Businesses invest in capital goods (new equipment) Businesses must hire more workers to build/supply these goods These newly-employed workers spend & create jobs for others Businesses eventually slow/stop investing in capital goods Businesses that create capital goods lay off workers due to lack of demand for their goods Laid of workers slow/stop spending (due to a lack of disposable income) Lack of spending forces other business to slow production & lay off workers

18. How do economists know which stage of the business cycle we are in (or are about to enter)?

19. Average weekly hours (manufacturing) —

20. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees.

21. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials —

22. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more.

23. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods —

24. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease.

25. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units –

26. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units – Builders must apply for, and receive, a building permit before construction can begin.

27. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units – Builders must apply for, and receive, a building permit before construction can begin. • The Standard & Poor's 500 stock index —

28. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units – Builders must apply for, and receive, a building permit before construction can begin. • The Standard & Poor's 500 stock index — The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy.

29. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units – Builders must apply for, and receive, a building permit before construction can begin. • The Standard & Poor's 500 stock index — The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy. • Index of consumer expectations —

30. Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made prior to new hires or layoffs. Employers will decrease hours of employees before layoffs are made. Employers will increase hours before hiring new employees. • Manufacturers' new orders for consumer goods/materials — Increases in new orders for consumer goods (durable goods) and materials usually lead to positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, which means manufacturers must produce more. • Manufacturers' new orders for non-defense capital goods — Increases in new orders for capital goods (machinery) occurs prior to increases in actual production. When manufacturers receive fewer orders for capital goods, this usually indicates that business production will decrease. • Building permits for new private housing units – Builders must apply for, and receive, a building permit before construction can begin. • The Standard & Poor's 500 stock index — The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy. • Index of consumer expectations — This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center, and is released once a month.

31. http://research.stlouisfed.org/fred2/series/UMCSENT/

33. Summarizer: Word SplashUse each of the words below in sentence and paragraph form. Underline each word as you use it. Business Cycle Real GDP Expansion Recession Leading Indicator Consumer Confidence

34. The United States economy goes through a business cyclewhere a phase of expansion is followed by a phase of recession. When the recession ends, the economy once again enters a phase of expansion. Economists use real GDP to determine whether the economy is growing or shrinking and which phase of the cycle the U.S. economy is in. Economists can use leading indicators, such as the consumer confidence index, to predict when new phases of the business cycle will begin. During recessions, consumer confidenceis low. However, when consumer confidence increases, people will spend more money. This leads to an increase in production (GDP) and an end to the recession. In that regard, an increase in consumer confidence can predict the end of the recession and the start of a new period of expansion.