Transcript Business Cycle & Circular Flow Model

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PRODUCTION INCREASES
PEOPLE GO BACK TO WORK
SPENDING INCREASES
DEMAND STIMULATES PRODUCTION
BUSINESSES MAY START TO INNOVATE A
NEW PRODUCTS
PROFITS INCREASE, BUSINESS GROWS,
ECONOMIC ACTIVITY SOARS
LOW UNEMPLOYMENT
 PRODUCTION IS HIGH
 NEW BUSINESSES OPEN
 HIGHER WAGES
 HIGH DEMAND FOR GOODS
AND SERVICES
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SPENDING DECREASES
DEMAND FOR PRODUCTS DECREASE
BUSINESSES PRODUCE LESS
UNEMPLOYMENT INCREASES
GDP DECLINES
PRICES INCREASE
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(INFLATION SETS IN)
 HIGH
UNEMPLOYMENT
 LOW PRODUCTIVITY
 A DEEP DEPRESSION
AFFECTS THE ENTIRE
ECONOMY AND LAST FOR
SEVERAL YEARS
http://www.youtube.com/watch?v=QQ37RLXNAgc
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Throw a stone into a serene lake and you’ll
create a ripple effect in the water
A.
B.
C.
D.
E.
Healthy
A little sick
So-so
Mostly unhealthy
Extremely unhealthy
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Does the economy seem better or worse than
last year?
How has the downturn affect you? Your
family?
What have you noticed in the community that
shows the health of the economy?
What have you noticed in the community that
may prove or show it may be getting healthier?
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Throw a major change at a large employer and
you’ll create a ripple effect in the economy
A large auto factory that employed more than
1,000 people closed in Belvidere, IL. Population
28,350.
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What effect would it have on the community?
BUSINESSES
GOVERNMENT
INDIVIDUALS
CIRCULAR FLOW
MODEL