Transcript BUSINESS CYCLE, FEDERAL RESERVE, TAXATION

BUSINESS CYCLE
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Phases of the Business Cycle
Recovery/Expansion – general increase in business activity.
Peak/Boom – economy operating at high level. High
employment, etc…
Contraction – general decline in business activity.
Trough – economy at lowest point, will begin expansion.
Recession – economy in decline for a period of 6 months.
Depression – extended period of contraction categorized by
millions out of work and the collapse of major institutions.
Economic Indicators
Consumer Price Index
Consumer Confidence
Money Supply
Durable goods
GDP
New Businesses
New Plants & Equipment
Economic Indicators
Total Inventories
Unemployment
Stock Prices
Personal Income
Delayed Deliveries
Building Permits
Manufacturing Labor Hours
ECONOMIC PROBLEMS
INFLATION
• During a period of inflation, prices of almost everything keep
rising. Inflation is a natural occurrence, but high rates of
inflation can cause a decline in business activity.
• Inflation is caused by an increase in the money supply. Money
in circulation, or being spent.
RECESSION
• During a period of recession, consumers are not spending
money, thus business profits and productivity slow down.
Periods of recession lead to higher rates of unemployment.
Causes of the Business Cycle
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Business Investment – business decisions
If businesses anticipate high sales in the future, they
will likely invest; contributes to expansion
If businesses anticipate a lower sales, they will reduce
production; slows growth
Government Activity
Policies on taxing and spending (fiscal policy)
Control over the money supply – Federal Reserve (monetary
policy)
External Factors
War – increased government spending
Discovery/Loss of raw materials