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Economics 11/7/11 NO SCHOOL: Professional Development Day. . Happy Eid al Adha to all the people. . Economics 11/8/11 NO SCHOOL: Professional Development Day. Election Day. Economics 11/9/11

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economics 11 7 11 http mrmilewski com
Economics 11/7/11
  • NO SCHOOL: Professional Development Day.

Happy Eid al Adha to all the people.

economics 11 8 11 http mrmilewski com
Economics 11/8/11
  • NO SCHOOL: Professional Development Day.
  • Election Day
economics 11 9 11 http mrmilewski com
Economics 11/9/11
  • OBJECTIVE: Demonstration of Chapter#12 and begin examination of the business cycle. MCSS E-2.1.5
  • I. Administrative Stuff

-attendance & distribution of test

  • II. Chapter#12 Test
  • III. Journal #34 pt.A

-Examine the cartoon p.343

-Answer the caption question p.343

-Examine Figure 13.2

-Answer the caption question p.345

  • IV. Journal #34 pt.B

-notes on the business cycle

this week
This week
  • Chapter#13 section#1
  • Chapter#14 section#1
  • Chapter#14 section#3
  • Chapter#13&14 Test is Tuesday!
the business cycle
The Business Cycle
  • Business cycle - the rise and fall of GDP over time.
  • GDP – Gross Domestic Product
  • GDP= C+I+G+(X-M)
  • C – consumer
  • I – business
  • G – government
  • X – exports
  • M - imports
the recession phase of the business cycle
The Recession Phase of the Business Cycle
  • There are two phases of the business cycle
  • Recession – when real GDP declines for two quarters in a row (6 months)
  • A recession begins following a peak
  • Peak – the point where GDP stops going up
  • A recession ends at a trough
  • Trough – the turnaround point where GDP stops going down.
the expansion phase of the business cycle
The Expansion Phase of the Business Cycle
  • Expansion – period of recovery from a recession.
  • Expansion begins at the trough of the business cycle.
  • Expansion ends when the business cycle reaches a new peak.
  • Since WWII, the average recession lasted 11 months. The average expansion lasted 43 months.
  • The expansion that began in March 1991 & almost ended in March 2001 is the longest in history. (1st and 3rd quarters of 2001 GDP dropped)
us real gdp 2006 2010
US Real GDP 2006-2010

us real gdp 1999 2009
US Real GDP 1999-2009

us real gdp 1990 2006
US Real GDP 1990-2006

real gdp v unemployment
Real GDP v. Unemployment

gnp v gdp
  • GDP- the dollar value of all final goods and services produced within a country’s national borders in a year.
  • GNP- the dollar value of all final goods, services, and structures produced with labor and property supplied by a countries residents.
  • If a recession becomes very severe, it may turn into a depression
  • A depression is a state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants
  • Between 1929 and 1933, GDP declined nearly 50% and unemployment rose 8 times!
  • Currency was in such short supply that towns, counties, chambers of commerce, and other civic bodies resorted to printing their own money, known as depression scrip
  • Several factors contributed to the Great Depression
  • One was the disparity in the distribution of income
  • Easy and plentiful credit also appears to have played a role
  • Global economic conditions also played a part as American tariffs on imports kept many countries from selling goods to the United States
economics 11 10 11 http mrmilewski com
Economics 11/10/11
  • OBJECTIVE: Examine of the business cycle.

MCSS E-2.1.4

  • I. Journal #35 pt.A

-Questions on Econ U.S.A. episode#3

  • II. Quiz#19
  • III. Return of Chapter#12 Test
  • IV. Journal #35 pt.B

-notes on the business cycle

econ u s a episode 3
Econ U.S.A. episode #3
  • 1.) Why was Congress unable to determine the true severity of the Great Depression?
  • 2.) What was the result of this problem?
  • 3.) How did the U.S. Government prepare economically for WWII?
  • 4.) How does government spending affect the circular flow?
  • 5.) How did the environmental concerns of the 1970’s effect the economy?
  • 6.) How does the government know if the policies they enact have helped the economy?
this week1
This week
  • Chapter#13 section#1
  • Chapter#14 section#1
  • Chapter#14 section#3
  • Chapter#13&14 Test is Tuesday!
the end of the depression
The End of the Depression
  • Massive government spending during World War II added a huge stimulant to the economy for most of the early 1940s
  • Recession returned in 1945, but it did not last
  • As soon as the war was over, consumers went on a buying binge that stimulated expansion again
  • Since 1965, there has been a recurring pattern of recessions and expansions
  • After 1980, however, recessions occurred less frequently
  • The expansion that began in 1991 is the longest expansion in United States history
why business cycles
Why Business Cycles?
  • No one theory seems to explain past business cycles, or serves as a way to predict future ones
  • Changes in capital expenditures are one cause of business cycles
  • When the economy is expanding, businesses expect future sales to be high, so they invest heavily in capital goods
  • After a while, businesses may decide they have expanded enough and they begin to pull back on their capital investments
inventory adjustments innovation
Inventory Adjustments & Innovation
  • Inventory adjustments, or changes in the level of business inventories, are a second possible cause of business cycles
  • Some businesses cut back on inventories at the first sign of an economic slowdown and then build them back up again at the first sign of an upturn
  • When a business innovates, it often gains an edge on its competitors because its costs go down or its sales go up
  • The imitating companies must invest heavily to do this, and an investment boom follows
monetary policy
Monetary Policy
  • A fourth possible cause of business cycles is the credit and loan policies of the Federal Reserve System
  • When “easy money” policies are in effect, interest rates are low and loans are easy to get
  • Eventually the increased demand for loans causes interest rates to rise, which in turn discourages new borrowers
  • As borrowing and spending slow down, the level of economic activity declines
  • A final potential cause of business cycles is external shocks, such as increases in oil prices, wars, and international conflict
  • Some shocks drive the economy up, as when Great Britain discovered North Sea oil in the 1970s
  • Other shocks can be negative, as when high oil prices hit the United States in the early 1970s
economics 11 11 11 http mrmilewski com
Economics 11/11/11
  • OBJECTIVE: Examine of the effects of monetary policy on the business cycle & types of inflation. MCSS E-2.1.7
  • I. Journal #36 pt.A

-Read “Business Week Newsclip” p.362

-Answer questions (1-2) p.362

  • II. Journal #36 pt.B

-notes on the business cycle

  • III. Journal #36 pt.C

-notes on the Commanding Heights (episode#2 day#2)

  • Inflation is a special kind of economic instability, one that deals with changes in the level of prices rather than the level of employment and output
  • To better understand inflation, we must first examine how it is measured
  • Then we can examine the causes of inflation and its consequences
  • In order to find inflation, we start with the price level, the relative magnitude of prices at one point in time
  • To measure the price level, economists select a market basket of goods
  • They then construct a price index such as the consumer price index (CPI), the producer price index, or the implicit GDP price deflator
  • Prices tend to rise faster during expansions and then slow down during recessions
  • On rare occasions, unusual circumstances may cause deflation, or a decrease in the general price level
types of inflation
Types of Inflation
  • Creeping inflation - inflation in the range of 1 to 3 percent per year
  • Galloping inflation - a more intense form of inflation that can go as high as 100 to 300 percent
  • When inflation gets totally out of control, hyperinflation - inflation in the range of 500 percent a year and above–occurs
causes of inflation
Causes of Inflation
  • Nearly every period of inflation is due to one of the following causes
  • First explanation demand-pull theory - all sectors in the economy try to buy more goods and services than the economy can produce
  • As C + I + G converge on stores, shortages occur and prices go up
causes of inflation1
Causes of Inflation
  • Second explanation - federal government’s deficit - blames inflation only on the federal government’s deficit spending
  • Third explanation claims that rising input costs (cost push)–especially labor–drive up the cost of products for manufacturers and cause inflation
causes of inflation2
Causes of Inflation
  • Still another explanation says that no single group is to blame for inflation
  • According to this view, a self-perpetuating wage/price spiral of wages and prices begins that is difficult to stop
  • The final and most popular explanation for inflation is excessive monetary growth
  • This occurs when the money supply grows faster than real GDP
  • Inflation cannot be maintained without a growing money supply to fuel it
consequences of inflation
Consequences of Inflation
  • When inflation is present, it can have a disruptive effect on an economy for several reasons
  • The most obvious effect of inflation is that the dollar buys less
consequence of inflation
Consequence of Inflation
  • Decreased purchasing power is especially hard on retired people with fixed incomes because their money buys a little less each month
  • A second destabilizing effect is that inflation can cause people to change their spending habits, which disrupts the economy
  • A third destabilizing effect of inflation is that it tempts some people to speculate heavily in an attempt to take advantage of a higher price level
  • Finally, inflation alters the distribution of income
  • During long inflationary periods, lenders are generally hurt more than borrowers
  • Loans made earlier are repaid later in inflated dollars