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**Understanding the Economy Phases: A Comprehensive Guide for Beginners**

Learn how the economy moves through phases, from prosperity to recession, and understand the impact of government policies on fiscal and monetary levels. Explore concepts like GDP, inflation, and budget games.

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**Understanding the Economy Phases: A Comprehensive Guide for Beginners**

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  1. Chapter 19: Section 1 Measuring the ECONOMY

  2. The Business cycle

  3. Phase 1 • General prosperity – economy going up • People buying more goods and services • Businesses producing more goods and services and hiring more employees

  4. Phase 2 • Boom period – economic activity at peak • Businesses working and selling at full capacity

  5. Phase 3 • Economy starting to slow down • People buying fewer goods and services • Businesses cutting back production and laying off workers; some forced out of business

  6. Phase 4 • RECESSION • Production at lowest point • High unemployment • Reduced spending on goods and services • “A recession is when your neighbor loses your job. A depression is when YOU lose your job. A recovery is when Jimmy Carter loses his job.” – Ronald Reagan

  7. Phase 4.oh no (DEPRESSION) 1930s FDR and the NEW DEAL

  8. Fiscal Policy • The way the government taxes citizens and spends money • EXAMPLE: Government may spend money to try to keep the economy and businesses going. • Bail out plans under OBAMA • Goal: get demand up so businesses hire people • EXAMPLE: Government may cut taxes • Bush tax cuts • Goal: stimulates production by giving people more money to SPEND on goods and services

  9. Monetary Policy • The way government regulates the amount of money in circulation • Controlled by the Federal Reserve System (the Fed) • Acts as a bank for the banks • Can raise and lower interest rates • http://www.frbsf.org/education/activities/chairman/ • WARNING: printing too much money makes our money worth less and prices go up

  10. Gross Domestic Product (GDP) • Total value, in dollars, of all the final goods and services produced within the nation each year • Does not include goods or services produced by American citizens or American-owned companies outside the United States

  11. Inflation • General rise in the prices of goods and services • Prices go UP = Standard of Living goes DOWN • We hope if this happens wages also go up. BUT that is not always the case • CONTROLLING INFLATION: • Higher interest rates makes it more expensive to borrow moneyand puts a damper on activity • Gov’t may reduce the money in circulation by raising taxes and cutting its own spending • Businesses can increase productivity(produce more goods an services)so that demand/prices goes down • Consumers can save more money and spend less • PROBLEMS w/ CONTROLLING INFLATION • May increase unemployment • Less people buy things

  12. GOVERNMENT BUDGET GAMES • http://www.marketplace.org/topics/economy/budget-hero • http://crfb.org/stabilizethedebt/ • http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

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