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The Business Cycle

Today’s LEQ : how does the business cycle reflect the health of the economy?. The Business Cycle. The Business Cycle. The economy fluctuates between periods of macroeconomic expansion and contraction – this activity is called the Business Cycle

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The Business Cycle

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  1. Today’s LEQ: how does the business cycle reflect the health of the economy? The Business Cycle

  2. The Business Cycle • The economy fluctuates between periods of macroeconomic expansion and contraction – this activity is called the Business Cycle • Represents major fluctuations (not day-to-day ups and downs) • Gross Domestic Product (GDP) is a good proxy for overall economic activity • GDP is the total value of all final g/s produced in an economy and helps to measure our economic well-being

  3. Visual 1

  4. Recessions vs. Depessions • Recessions generally defined as period when GDP falls for two consecutive quarters (6 months) • Depressions considered to be severe recessions] http://www.nber.org/cycles/cyclesmain.html

  5. Impact of the Business Cycle • We are always somewhere on the business cycle and it impacts our lives everyday • How are we impacted during a period of Expansion? Contraction?

  6. Leading, Lagging, and Coincident Indicators • Leading Indicatorspredict changes in the economy before they occur (i.e. Stock Prices) • Coincident Indicators measure the current state of the economy (Current Unemployment Rate) • Lagging indicatorsmeasure changes in the economy after they've occurred (Change in Unemployment Rate) • Why would it be helpful to predict/forecast turning points in business cycles? Visual 2

  7. Economic Jokes Are Funny • Economic forecasters make weather forecasters look good.” • Economists have predicted six out of the last our recessions.”

  8. Economic Forecasts • There are many different types of forecasts and forecasting methods, but it’s difficult • The problem? Too many variables interacting and changing all at once; impossible to make consistently accurate forecasts Visual 3 – Lesson 20, Activity 1

  9. Economic Forecasting Activity • Your activities contain actual information about the leading indicators from two different dates in recent history • Read the information from the leading indicators carefully and prepare a GDP forecast

  10. How Accurate Were Your Forecasts? • Activity 2 was from January 1997. The economy was expanding for close to six years, and it continued to expand until March 2001. Accurate forecasts would have predicted significant growth • Activity 3 was from October 2000. The economy entered into a recession that lasted from March until November 2001. The accurate forecasts would have predicted a turn for the worse, and that a recession was coming.

  11. Today’s Exit Ticket • List the phases of a typical business cycle. Describe what happens during an expansion phase and contraction phase. • Explain how the business cycle reflects the health of the economy.

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