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Chapter 6.1

Chapter 6.1. Economic Ups and Downs. Business cycles. The ups and downs of the economy. The Business Cycle. Contraction: Business activity slows down. If the contraction lasts long enough and is deep enough, the economy goes into a recession.

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Chapter 6.1

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  1. Chapter 6.1 Economic Ups and Downs

  2. Business cycles • The ups and downs of the economy

  3. The Business Cycle • Contraction: Business activity slows down. If the contraction lasts long enough and is deep enough, the economy goes into a recession • Trough: At the lowest point in the cycle, business activity levels off

  4. The Business Cycle continued • Expansion: The economy begins to recover. People spend more money and open more businesses, demand brings more production of goods and services, and employment rises. • Peak: A period of prosperity marks the highest point of the cycle. Eventually, however, a contraction occurs and the cycle stars over again

  5. Recession: • Period of significant decline in the economy • Usually lasts 6 months to a year • Economy produces more than people can consume • Business profits go down, so business cut back on production and lay off workers

  6. Depression • Happens only if a recession lasts longer than 6 months to a year • Major economic slowdown, longer lasting and more serious than a recession • Demand decreases sharply, prices plummet, business fail, unemployment soars

  7. Inflation: • General, prolonged rise in the prices of good and services • Affects consumers by reducing their purchasing power

  8. Factors Affecting the Up and Downs • Consumer Confidence: If Americans feel gloomy about the future, they will cut back on spending • Technological innovation: Can create new markets where none existed before • Government policies: can hurt or help out • War: demand for goods and services increase

  9. Economic indicators • Measurements used to monitor the health of the economy

  10. Gross Domestic Product • (GDP) total dollar value of goods and services produced in a country during the year • Compare what was produced in one year

  11. Unemployment Rate • High unemployment rate is a sign that the economy is in poor health

  12. Consumer Price Index • Measures the change in prices over time of a specific group of goods and services • The group of items, called a market basket, includes over 200 categories of goods and services the average household uses • It is not a dollar value of the market basket items. It is a number that relates the current price of the market basket to the price during a specific time period in the past

  13. Chapter 6.2http://www.brillig.com/debt_clock/ Deficits and Debt

  14. Objectives • Distinguish between a budget surplus and a budget deficit • Identify reasons for deficit spending by governments • Analyze the effects of the national debt on consumers

  15. The Budget Process • Like individuals, governments create budgets to manage their spending.

  16. Budget • An estimate of anticipated income and expenses for a certain period of time

  17. The Federal Budget • It is based on a Fiscal year • Begins on October 1st each year

  18. Now what happens? The steps to creating a Federal budget • Long before October 1st the Office of Management and Budget (part of the Executive Branch) begins work on a budget proposal • After reviewing and approving the proposed budget the President submits it to Congress for debate

  19. Now what happens? The steps to creating a Federal budget • After some debate the House of Representative approves the final budget and it become a law • After the fiscal year ends on September 30th, the actual amounts of revenue and spending are reviewed and compared

  20. Budget Surplus: • If more money was collected than spent • Q: Who was the last president to reach a budget surplus?

  21. Deficit Spending • Practice of spending more money than was received in revenue

  22. Budget deficit • The amount by which spending exceeds revenue

  23. National Debt • The total money that the federal government owes, aka, public debt • What is our National Debt right now???

  24. Savings Bond • When you buy one, you are loaning money to the government for a certain period of time. • Gov’t agrees to pay back the original amount plus interest

  25. How does this affect you? • Interest on the national debt eats up between 10% and 20% of the federal budget • This is money that could be spent on education, health care, public transportation, and public safety

  26. What can you do to help out? • Vote! Elect the politicians who have the best budget plans • http://www.youtube.com/watch?v=8bRk_SvE0Lg • http://www.youtube.com/watch?v=QZCzUecCT3M

  27. End of 6.2

  28. Chapter 6.3 Stabilizing the Economy http://knowledge.wharton.upenn.edu/article.cfm?articleid=1904

  29. Fiscal Policy • Federal government’s use of taxing and spending policies to help stabilize the economy

  30. What is one way the federal government might boost the economy? • Cut personal taxes. • Putting more money into consumers’ hands allows them to buy more!

  31. Money Supply • Total amount of money in circulation at any given time

  32. Monetary policy • Efforts to stabilize the economy by regulating the money supply

  33. Who carries out what??? The fiscal policy is carried out by the __________ and __________ The monetary policy is carried out by the nation’s ________ bank President Congress central

  34. Federal Reserve System • The central bank of the United States • Provides financial services to the banking industry and the government • Regulates banks to make sure that they follow the law • Primary responsibility is to set monetary policy

  35. Federal Reserve Board • Governing body of the Federal Reserve System, aka, Board of Governors. • 7 members are nominated by the President and confirmed by the Senate • These seven people, along with five presidents of district Federal Reserve Banks, make up a group called the Federal Open Market Committee • Monitor the health of the economy and decides whether changes are needed

  36. The Fed and the Money Supply • When the Fed increases the money supply, credit becomes more available and less costly • Consumer spend more • When the Fed decreases the money supply, credit becomes harder to get and more expensive • Consumers cut back on spending

  37. Federal Funds Rate • The interest rate at which banks lend money to one another overnight

  38. Discount Rate • The interest rate that banks pay the Fed

  39. Reserve requirement • The percentage of a bank’s deposits that it must keep on hand. • For Example • If a bank’s customers have deposited $100 million and the reserve requirement is set at 10%, the bank must hold $10million in reserve

  40. Fed policies impact several areas of your life! • What you’ll pay for goods and services: The fed keeps a watchful eye on inflation • Your ability to get credit and the interest rates you will pay: Fed regulates the money supply • What you’ll earn in interest: Fed polices directly affect interest rates • Your job stability and the wages you are paid: by increasing the money supply, the Fed encourages the creating on new jobs

  41. http://www.cnn.com/video/#/video/us/2008/02/28/pkg.student.deli.kgtv?iref=mpvideosviewhttp://www.cnn.com/video/#/video/us/2008/02/28/pkg.student.deli.kgtv?iref=mpvideosview • http://www.youtube.com/watch?v=YsDmPEeurfA

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