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Business Fluctuations Up & down movement in GNP

Business Fluctuations Up & down movement in GNP. Types of business fluctuations: 1. Secular Trends Long-Term Trends up to 50 years 2. Seasonal Fluctuation Short-term movements Changes within one year 3. Cyclical Fluctuations/ Business Cycles Changes within 2-9 years

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Business Fluctuations Up & down movement in GNP

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  1. Business FluctuationsUp & down movement in GNP Types of business fluctuations: 1. Secular Trends Long-Term Trends up to 50 years 2. Seasonal Fluctuation Short-term movements Changes within one year 3. Cyclical Fluctuations/Business Cycles Changes within 2-9 years Average 4 years Page 15

  2. Session Two II. Summary BUSINESS CYCLE ProsperityBooming sales profits, high jobs, income RecoveryIncrease of sales, decrease jobs, profits, income, decrease production Recession Declining sales, profits, jobs increase income; inventory unsold DepressionFew sales, profits minimal jobs; production down/stops; income decrease; decrease real estate sales Page 15

  3. Depression is the longest phase in the business cycle. • Some phases may be skipped in real world. • U.S. has not had a depression since the 1930’s. • 2006 to 2013 – “the Great Recession” • Cycle skips from recession to recovery. Page 15

  4. Business Cycle Fluctuations War Innovations Under/Over Consumption Monetary Psychological Combinationof factors Page 15

  5. Political problems Information problems Timing problems What works in economic theory may have problems in real world application

  6. Federal Fiscal Policy • The Power to Spend and Tax To control inflation and recession Congress has the power Page 16

  7. Monetary Policy • Refers to the Federal Reserve’s power to increase or decrease money, credit and interest rate. • The Federal Reserve Board Chairman is appointed by the President. • The Federal Reserve Board is not a department of the U.S. Government. Page 16

  8. How is Fiscal Policy Used • Fight inflation • Fiscal policy used to discourage government spending • Monetary policy used to tighten up money supply • Fight recession and unemployment, • Fiscal policy might increase government spending and/or decreased taxes • Monetary policy used increase money supply and lower interest rates. Page 16

  9. FISCAL POLICY Federal Spending & Taxation Policy Prosperity Increase taxes to slow, decrease spending Recovery increase taxes decrease spending Recession Decrease taxes increase spending Depression decrease taxes increase spending

  10. Business Cycle vs. Real Estate Cycle Business Cycle Real Estate Cycle

  11. Real Estate Market • Moves in cycles too • Cycles affect amount of homes and money in circulation Page 16

  12. 18 Year – Long Real Estate Cycle Short Cycle Prosperity Recovery Recession 18 Years x Depression x Credit available – activity increases Not available – recession or depression 2 Years Page 16

  13. Real estate can be contra-cyclical to general business cycle • When general business cycle is up, home building and resale activity starts to slow down as prices rise and makes homes unaffordable. • Business activity might be declining and the real estate market increases as buyers start to buy at ‘bargain prices’ Page 16

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