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Understanding the Business Cycle: Economic Activity Fluctuations and Measurement

This unit explores the business cycle, highlighting the recurrent phases of economic activity including recessions and recoveries. It explains how these phases manifest over both short-term (2-3 years) and long-term (50-60 years) periods. Key concepts such as bull markets and economic peaks are addressed, providing insights into the major ups and downs of the economy. Understanding these cycles is essential for analyzing economic trends and making informed business decisions.

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Understanding the Business Cycle: Economic Activity Fluctuations and Measurement

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  1. Unit 1.04 The Business Cycle Measuring Economic Activity
  2. The business cycle Recurrent periods during which the nation’s economy moves in and out of recession and recovery phases Major ups and downs of economy Short Term (2-3 years) Long Term (50-60 years)
  3. Bull market Peaks Growing economy Increasing investor confidence Anticipation of future price increases
  4. Bear market Troughs General decline in the stock market over a period of time Transition from high investor optimism to widespread investor fear and pessimism price decline of 20% or more over at least a two-month period sometimes referred to as "The Heifer Market"
  5. prosperity A phase of the business cycle where most people who want to work are working and businesses produce goods & services in record numbers. Economic Growth 1945-1973 $200B in war bonds matured GI Bill financed well-educated work force Middle class swelled Increase in GDP and Productivity
  6. recession A period where demand begins to decline, businesses lower production of goods & services, unemployment begins to rise, and GDP growth slows for several quarters Reduced Economic Activity GDP negative for 2 or more quarters 1.5% rise in Unemployment in 12 months Late 2000s Collapse of the housing market Bank failures High Unemployment Low Consumer Confidence Escalating Debt Inflation Rising gas and food prices
  7. depression A phase marked by high unemployment, weak sales of goods & services, and business failures Sustained, long-term economic downturn Large increases in Unemployment Reduced credit availability Large number of bankruptcies Deflation Bank failures
  8. The great depression 1929 – late 1930s Stock Market Crash October 29th “Black Tuesday” Massive Bank Failures Millions lost jobs Global in scale
  9. Depression or recession? 1930s 2008 8th year in a row world’s 6B people consumed more food than produced US owes world between $4-$5T World’s stockpiles at lowest in 37 years No currency is redeemable in gold Increased government spending Overproduction in agriculture US banks recalling international loans Large stockpiles of agricultural commodities released in to market Gold standard Deflationary policies reduced government spending
  10. recovery A phase of the business cycle in which unemployment begins to decrease, demand for goods & services increases, and GDP begins to rise again High levels of growth following a Recession Government stimulus packages Are we in a Recovery now? Timeline of late 2000 global recession
  11. Economic indicators Gross Domestic Product (GDP) Inflation Consumer Price Index (CPI) Productivity Unemployment Debt Consumer Confidence
  12. Gross domestic product The total value of all final goods & services produced in a country in one year GDP = private consumption + gross investment + government spending +(exports – imports) Often reflects a country’s Standard of living
  13. Inflation An increase in the general price level When prices increase, each unit of currency buys fewer goods & services Caused by excessive growth of the money supply
  14. Consumer price index Shows change in the average prices of goods & services bought by consumers over a period of time Related to inflation Shows how much your money can buy
  15. productivity The quantity of a good an average worker produces in an hour Measure of output from a production process GDP per hour worked
  16. unemployment State of being without paid work, though willing and able to work and actively seeking work Proportion of labor force that is without paid work
  17. debt money borrowed by the federal government of the US at any one time through the issue of securities by the Treasury and other federal government agencies Deficit – the difference between the total amount spent by Congress and the amount received by the IRS Currently $14.7T US National Debt Clock Surplus – revenues exceed spending Balanced Budget – revenues = spending President Clinton, 1998-2001 ?
  18. Strength of US economy to other countries Top 10 largest world economies Trading Economics
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