Transcript The Business Cycle

The Business Cycle
MK, U 23
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PRONUNCIATION
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PRONUNCIATION
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The Business Cycle
the recurring and fluctuating levels of
economic activity that an economy
experiences over a long period of time
(www.investopedia.com)
Recur – come again, happen again
Fluctuate – change ,vary, oscillate
Output - production
The Business Cycle
→ MK, p 114
Lead-in discussion
Vocabulary 1
Viewing/listening
Please watch the video:
http://www.youtube.com/watch?v=EMHkiKxtlvw
and make notes to capture the most
important information:
“a backwards rollercoaster”
3 indicators of recession by NBER
definition of recession
4 phases
economic trends in recession
V-shaped recession v. U-shaped recession
NBER = National Bureau of Economic Research
3 indicators of recession by NBER:
 GDP = gross domestic product
 employment
 wholesale – retail trade
definition of recession:
2 or more consequtive quarters of negative economic growth
4 phases:
Peak
Recession
Trough
Expansion (recovery)
 economic trends in recession:
C_ _ _ _mer spending slows
Inv_ _ _ _ ries build up
Companies r _ _ _ _ e output and layoff employees
Unemployment r _ _ _ s
 economic trends during a recovery
Activity a _ _ _ _ _ _ _ _ es
Consumer spending i _ _ _ _ _ _ s
New orders are placed
Companies increase output and a _ _ employees
Unemployment d _ _ _ _ _ _ s
Collocations: recession v. expansion
economic activity slows down 
consumers spend less money
businesses make fewer sales 

inventories build up
companies earn less revenue

fewer orders are placed

businesses cut back on output
unemployment rate goes up 
businesses reduce the number
of people on payrolls
 eventually it reaches a trough 









economic activity picks
up again
sales improve
excess inventories are
used up
new orders are placed
production is ramped up
again
job opportunities improve
unemployment rate
comes down
eventually it tops out
Collocations: recession (R) or expansion (E)?
Match!
 E - economic activity picks up 
again

 ? businesses make fewer
sales
 ? excess inventories are used 
up

 ? companies earn less
revenue

 ? new orders are placed

 ? production is ramped up
again
 ? job opportunities improve
*
? businesses cut back on
output
? unemployment rate
goes up
? eventually* it reaches a
trough.
? eventually it tops out
? consumers spend less
money
? sales improve
at an unspecified later
time, in the end
MATCH
V-SHAPED OR U-SHAPED
RECESSION?
 begins abruptly
 reaches a trough
quickly
 recovers quickly
?
 slowdown lingers*
 takes a long time for
activity to pick up
again
?
* to remain existent although
often waning in strength,
importance, or influence
Business Cycle, cont.
Revision: Recession or Expansion?
 E: economic activity p_ _ _ _ 
u_ again
 R: businesses make f _ _ _ _ 
sales

 E: excess inventories are
u _ _ _ up

 R: companies earn l _ _ _

r______
 E: new orders are placed
 E: production is r _ _ _ _ _ up 
again
 E: job opportunities i_ _ _ _ _ _*
R: businesses c_ _ b_ _ _
on output
R: unemployment rate goes
__
R: eventually* it reaches a
_ _ _ _ _ _.
E: eventually it tops out
R: consumers spend _ _ _ _
money
E: sales improve
at an unspecified later time,
in the end
Collocations: recession or expansion?
 E: economic activity picks up 
again

 R: businesses make fewer
sales
 E: excess inventories are used 
up

 R: companies earn less
revenue

 E: new orders are placed

 E: production is ramped up
again
 E: job opportunities improve *
R: businesses cut back
on output
R: unemployment rate
goes up
R: eventually* it reaches
a trough.
E: eventually it tops out
R: consumers spend less
money
E: sales improve
at an unspecified later
time, in the end
READING (MK, p. 114,115)
1.
2.
3.
4.
5.
6.
7.
8.
9.
What happens to GDP in a business cycle?
What happens during an upturn? (What tends to rise?)
What is a boom?
What happens during a downturn? (What falls?)
What is the difference between a recession and a
depression? (Synonyms?)
What is the most probable cause of the business
cycle?
How do people behave in good times? And in bad
times?
How is investment connected with demand?
What is creative destruction?
Team work: Comprehension
Comprehension
 A downturn begins when ...
... the demand for goods and services declines.
 People spend, and borrow money, when...
... economic times are good and they feel
confident about the future.
 People tend to spend less when...
... they are afraid of losing their jobs / becoming unemployed.
 When interes rates rise...
... people have to pay more on their mortgage or rent (and so
consume less).
 Companies only invest while ...
... consumption is increasing.
 Creative destruction means that ...
... innovations destroy established companies or industries.
Causes of the business cycle: internal & external
How is internal theory different from external theory?
 Internal (endogenous) theories:
beliefs about the future
interest rates
wages and salaries
↓
consumption (demand = output)
↓
investments (grow)
 External (exogenous) theories:
technological, political and demographic changes
Why are economies plagued by
recurrent business cycles?
Listening 1: Consumption and the
business cycle
Listening 2: Keynesianism
HOMEWORK – Mon/Tue
MK, p 116
Vocabulary 2 (1): Fiscal and monetary policy
MK pp 117, 118
Reading 2: Keynesianism and Monetarism
- read and allocate headings (A – E)
- match up the half-sentences (p 118)