Transcript Intro to Economics

Intro to Economics
Civics & Economics
M. Teal
Do Now
• What is the difference between a want and a
need?
Barter Simulation
• Each of you has been given a sheet of paper. On this sheet
of paper, you are given a particular good that you have.
Example: “You have 4 bails of hay”. The sheet of paper also
states a good that you want. Example: “You want 5 pigs”
• The goal of the simulation is for you to trade with your
classmates so that your “want” is the same thing as your
“have”
• In order to trade, you should tear your sheet of paper at
the dashed line. You may trade away your “have”, but you
must keep your original “want”
• When your new “have” matches your original “want”,
return to you seat.
• Barter is a type of trade in which goods or
services are directly exchanged for other
goods and/or services, without the use of
money.
Barter
Benefits
Drawbacks
barter
economy
money
economy
• Money is anything that is generally accepted
as payment for goods and services and
repayment of debts.
• vote on the characteristics of money that you
think are most necessary
– Durability
– Portability
– Acceptability
– Divisibility
– Stability in value
“The Story of Money”
https://docs.google.com/a/cms.k12.nc.us/file/d
/0B6tgXhprC8x2a1pmSExuNUt2QWs/edit
“The Story of Money”
• 1. Commodity money- money whose value comes from a
natural resource or good out of which it is made. Examples of
commodities that have been used as mediums of exchange
include gold, silver, copper, salt, peppercorns, large stones,
decorated belts, shells, alcohol, cigarettes, cannabis, and
candy.
• 2. Representative money- money that consists of token coins,
other physical symbols such as certificates that can be reliably
exchanged for a fixed quantity of a commodity such as gold,
water, oil, food, etc.
• 3. Currency- coins and paper money
• 4. Fiat money- money used as the circulating medium of
exchange that is not backed by or directly convertible into any
specific physical commodity, but rather has value because the
society that created the system that has assigned it value
“The Story of Money”
• 5. Legal tender- money that by law cannot be refused as
a medium of exchange
• 6. Checkbook money/demand deposits- An account
from which deposited funds can be withdrawn at any
time without any notice to the bank that is holding it.
• 7. Savings deposits- accounts maintained by banks that
pay interest but cannot be used directly as money.
Customers must transfer the money to a demand deposit
or into cash to use this money as a medium of exchange.
• 8. Timed deposit- a money deposit at a banking
institution that cannot be withdrawn for a certain period
of time.
• Our high school has decided to issue its own
money and you have been asked to design the
currency and create a table of the value of the
currency in relation to certain commonly used
school supplies.
• The money should:
– Be colorful with multiple illustrations that relate to
high school life and their school in particular
– Meet the major characteristics of effective money
discussed during class
– Have at least three difference denominations (divisible
units)
Do Now
Make a list of resources used in the production of this car.
• The factors of production are the resources used
to produce.
– Capital Goods - a man-made factor of production
used by labor in making other products. Includes
tools, factories, machines, etc.
– Labor - any form of human effort exerted in
production. Also called human resources.
– Natural resources - productive resources that are
provided by nature - such as land, air, water, forests,
coal, iron ore, oil, and minerals.
– Entrepreneurship - the individual responsible for
combining and organizing natural resources, capital
goods, and labor to produce a good or service. Role
could involve assuming the risks of business failure
and/or providing the creativity and managerial skills
necessary for production to take place.
Factors Of Production Poster
Entrepreneurs Consideration
1. Scarcity- Nearly all resources are scare,
meaning there is a limited supply available to
meet unlimited wants. In a free and open
market, the more scare a resource is, the
more expensive it is.
• This is an inverse economic relationship.
When a fruit is out of season, supply is more
scarce. This causes the price to increase
because it is more valuable.
Entrepreneurs Consideration
2. Opportunity Cost- Because resources are
scarce, he choice to use a resource in one
way means not using it in another. For
example, to using a field to grow tobacco
means the field cannot be used to grow soy
beans
Entrepreneurs Consideration
3. Productivity- is a measure of the amount of
output produced by a given amount of inputs. It
reflects how efficiently resources are being used.
This is also referred to as measuring efficient use
of the factors of production. For example, the
productivity of a farmer (labor) increases with the
use of a tractor (capital). Investing in human
capital is one way to increase productivity.
• Human capital refers to the quality of labor
resources, which can be improved through
investments in education, training, and health
Entrepreneurs Consideration
• In order for an entrepreneur to realize a profit,
he/she must produce at a cost lower than the
market price for the good or service. Profit is
the money left over from selling a good or
service after the cost of buying productive
resources have been paid.
Entrepreneurs Consideration
• The entrepreneur must minimize the use of
scarce resource in production and maximize
the productivity of the factors used in
production to keep cost as low as possible.
Economic Decision Making
Do Now
• What is Economics?
• Economics is the study of how people make
decisions in a world where wants are
unlimited but resources are limited.
– Needs are things that are required for survival,
such as food, clothing, and shelter.
– Wants, on the other hand, are things we would
like to have—things that improve our quality of
life, such as entertainment and vacations.
• Doing so requires people to consider 3
fundamental economic questions:
– WHAT is produced?
– HOW is it produced?
– WHO consumes what is produced?
WHAT is
produced?
HOW is it
produced?
WHO
consumes
what is
produced?
This is one of the
economic choices
that people in a
society, both
producers
and consumers, are
forced to make with
regard to “what”
should be produced
in a world with
limited resources.
A second choice
that society has to
make is “how” to
produce.
After goods and
services are
produced, a society
must determine
how the goods and
services will be
distributed among
its members.
• An economic system is a particular set of
social institutions which deals with the
production, distribution, and consumption of
goods and services in a particular society.
• Explain that there are 4 types of economic
systems
–
–
–
–
Traditional
Command
Market
Mixed
• While all societies face the same economic
questions, the way these questions are answered
determines the type of economic system of that
society
Traditional Comman
d
Define
Example
Advantage
Disadvanta
ge
Market
Mixed
Which Type of Economic System?
• Type:
– How do you know?
Do Now
• Brainstorm meaning of the word “Price.”
• Consider the following:
– What is a price? Are prices negotiable? Explain.
– Who sets prices? If no one person sets prices, how are they
determined?
– What characteristics of a product make you willing to pay a higher
price for it compared to other products?
– Why don’t businesses charge low enough prices so that everyone can
afford to buy their goods/services? On the other hand, why don’t
businesses charge as much money as they possible can for their
goods?
– What current events or events in recent history can you think of that
relate to prices being too high or too low? How long did this event
last? What caused the event?
PPT accompaniment for the Consortium's
Supply, Demand, and Market
Equilibrium
Introduction to Demand
• In the United States, the forces of supply &
demand work together to set prices.
• Demand is the desire, willingness, & ability to
buy a good or service.
– Supply can refer to one individual consumer or to
the total demand of all consumers in the market
(market demand).
Introduction to Demand
• A demand schedule is a table that lists the
various quantities of a product or service that
someone is willing to buy over a range of
possible prices.
Price per Widget ($)
Quantity Demanded of
Widget per day
$5
2
$4
4
$3
6
$2
8
$1
10
Introduction to Demand
• A demand schedule can be shown as points on a
graph.
– The graph lists prices on the vertical axis and
quantities demanded on the horizontal axis.
– Each point on the graph shows how many units of the
product or service an individual will buy at a particular
price.
– The demand curve is the line that connects these
points.
Demand Curve for Widgets
$6
$5
Price per Widget
$4
$3
Demand Curve for Widgets
$2
$1
$0
0
2
4
6
8
Quantity Demanded of Widgets
10
12
What do you notice about the demand
curve?
How would you describe the slope of the
demand curve?
Do you think that price and quantity
demanded tend to have this relationship?
Introduction to Demand
• The demand curve slopes downward.
– This shows that people are normally willing to buy less
of a product at a high price and more at a low price.
– According to the law of demand, quantity demanded
and price move in opposite directions.
Demand Curve for Widgets
Price per Widget
$6
$5
$4
$3
Demand Curve for Widgets
$2
$1
$0
0
2
4
6
8
10
Quantity Demanded of Widgets
12
Introduction to Demand
•
•
We buy products for their utility- the
pleasure, usefulness, or satisfaction they give
us.
What is your utility for the following
products? (Measure your utility by the
maximum amount you would be willing to
pay for this product)
•
Do we have the same utility for these goods?
Introduction to Demand
•
One reason the demand curve slopes
downward is due to diminish marginal utility
– The principle of diminishing marginal utility says
that our additional satisfaction tends to go down
as we consume more and more units.
•
To make a buying decision, we consider
whether the satisfaction we expect to gain is
worth the money we must give up.
Changes in Demand
• Change in the quantity demanded due to a
price change occurs ALONG the demand curve
Demand Curve for Widgets
•At $3 per Widget, the
Quantity demanded of
widgets is 6.
$6
•An increase in the Price of
Widgets from $3 to $4 will
lead to a decrease in the
Quantity Demanded of
Widgets from 6 to 4.
$5
Price per Widget
$4
$3
Demand Curve for Widgets
$2
$1
$0
0
2
4
6
8
Quantity Demanded of Widgets
10
12
Changes in Demand
• Demand Curves can also shift in response to
the following factors:
– Buyers (# of): changes in the number of consumers
– Income: changes in consumers’ income
– Tastes: changes in preference or popularity of
product/ service
– Expectations: changes in what consumers expect
to happen in the future
– Related goods: compliments and substitutes
• BITER: factors that shift the demand curve
Changes in Demand
• Prices of related goods affect on demand
– Substitute goods a substitute is a product that can
be used in the place of another.
• The price of the substitute good and demand for the other good
are directly related
• For example, Coke Price
Pepsi Demand
– Complementary goods a compliment is a good
that goes well with another good.
• When goods are complements, there is an inverse relationship
between the price of one and the demand for the other
• For example, Peanut Butter Price
Jam Demand
Changes in Demand
Demand
Increase
Curve
in Demand
for Widgets
•Several factors will
change the demand for
the good (shift the entire
demand curve)
$6$6
•As an example, suppose
consumer income
increases. The demand for
Widgets at all prices will
increase.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Orginal Demand Curve
Demand Curve for Widgets
New Demand Curve
$2$2
$1$1
$0$0
00
2 2
4
4
6
6
8
8
Quantity
QuantityDemanded
Demanded
ofofWidgets
Widets
10
10
12
12 14
Changes in Demand
Demand
Decrease
Curve
in Demand
for Widgets
$6$6
•Demand will also
decrease due to changes
in factors other than price.
•As an example, suppose
Widgets become less
popular to own.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Original Demand Curve
Demand Curve for Widgets
New Demand Curve
$2
$2
$1
$1
$0
$0
0
0
2
2
4
4
6
8
6
Quantity Demanded
of Widgets 8
Quantity Demanded of Widgets
10
10
12
12
Changes in Demand
• Changes in any of the factors other than price
causes the demand curve to shift either:
• Decrease in Demand shifts to the Left (Less
demanded at each price)
OR
• Increase in Demand shifts to the Right (More
demanded at each price)
Demand Practice Answers
Price
1. The income of the Pago-Pagans declines after
a typhoon hits the island.
D1
D
Quantity
Price
2. Pago-Pagan is named on of the most beautiful
islands in the world and tourism to the island doubles.
D1
D
Quantity
Price
3. The price of Frisbees decreases. (Frisbees are a
substitute good for boomerangs)
D1
D
Quantity
Price
4. The price of boomerang t-shirts decreases, which I
assume all of you know are a complementary good.
D1
D
Quantity
Price
5. The Boomerang Manufactures decide to add a
money back guarantee on their product, which
increases the popularity for them.
D1
D
Quantity
Price
6. Many Pago-pagans begin to believe that they may
lose their jobs in the near future. (Think expectations!)
D1
D
Quantity
Price
7. Come up with your own story about boomerangs and the
Pago-Pagans. Write down the story, draw the change in
demand based on the story, and explain why demand
changed.
D
Quantity
Do Now
• You are opening a business and need some
workers for the afternoon hours.
– How many hours would you be willing to work for
a week at the various wages. You can work no
more than 40 hours a week and will also have to
continue attending school and doing all their
Hours Per week
homework. Hourly Wage
$2
$6
$10
$14
$18
Introduction to Supply
•
•
Supply refers to the various quantities of a good or
service that producers are willing to sell at all
possible market prices.
Supply can refer to the output of one producer or
to the total output of all producers in the market
(market supply).
Introduction to Supply
• A supply schedule is a table that shows the
quantities producers are willing to supply at
various prices
Price per Widget ($)
Quantity Supplied of Widget
per day
$5
10
$4
8
$3
6
$2
4
$1
2
Introduction to Supply
• A supply schedule can be shown as points on a
graph.
– The graph lists prices on the vertical axis and
quantities supplied on the horizontal axis.
– Each point on the graph shows how many units of the
product or service a producer (or group of producers)
would willing sell at a particular price.
– The supply curve is the line that connects these
points.
Supply Curve for Widgets
$6
$5
Price per Widget
$4
$3
Supply Curve
$2
$1
$0
0
2
4
6
Quantity Supplied of Widgets
8
10
12
What do you notice about the supply
curve?
How would you describe the slope of the
supply curve?
Do you think that price and quantity
supplied tend to have this relationship?
Introduction to Supply
•
As the price for a good rises, the quantity
supplied rises and the quantity demanded
falls. As the price falls, the quantity supplied
falls and the quantity demanded rises.
The law of supply holds that producers will
normally offer more for sale at higher prices
and less at lower prices.
Supply Curve for Widgets
$6
Price per Widget
•
$5
$4
$3
Supply Curv
$2
$1
$0
0
2
4
6
8
Quantity Supplied of Widgets
10
12
Introduction to Supply
• The reason the supply curve slopes upward is
due to costs and profit.
• Producers purchase resources and use them to
produce output.
– Producers will incur costs as they bid resources
away from their alternative uses.
Introduction to Supply
• Businesses provide goods and services hoping to
make a profit.
–
–
–
Profit is the money a business has left over after it
covers its costs.
Businesses try to sell at prices high enough to cover
their costs with some profit left over.
The higher the price for a good, the more profit a
business will make after paying the cost for
resources.
Changes in Supply
•Change in the quantity supplied due to a price change
occurs ALONG the supply curve
•At $3 per Widget, the
Quantity supplied of
widgets is 6.
Supply Curve for Widgets
$6
•If the price of Widgets fell
to $2, then the Quantity
Supplied would fall to 4
Widgets.
$5
Price per Widget
$4
$3
Supply Curve
$2
$1
$0
0
2
4
6
Quantity Supplied of Widgets
8
10
12
Changes in Supply
• Supply Curves can also shift in response to the
following factors:
– Subsidies and taxes: government subsides encourage
production, while taxes discourage production
– Technology: improvements in production increase ability of
firms to supply
– Other goods: businesses consider the price of goods they
could be producing
– Number of sellers: how many firms are in the market
– Expectations: businesses consider future prices and
economic conditions
– Resource costs: cost to purchase factors of production will
influence business decisions
• STONER: factors that shift the supply curve
Changes in Supply
•Several factors will
change the demand for
the good (shift the entire
demand curve)
Supply
Increase
Curveinfor
Supply
Widgets
$6
•As an example, suppose
that there is an
improvement in the
technology used to
produce widgets.
$5
Price per Widget
$4
$3
Original Supply Curve
Supply Curve
New Supply Curve
$2
$1
$0
0
2
2
4
4
6
6
8
Quantities
Quantity
Supplied
Supplied
of Widgets
of Widgets
810
12 10
14
12
Changes in Supply
•Supply can also decrease
due to factors other than
a change in price.
Supply
Decrease
in Curve
Supplyfor Widgets
$6
•As an example, suppose
that a large number of
Widget producers go out
of business, decreasing
the number of suppliers.
$5
Price per Widget
$4
$3
Original Supply Curve
Supply Curve
New Supply Curve
$2
$1
$0
0
22
4 4
6 6
8
Quantity
Quantity
Supplied
Supplied
of Widgets
of Widgets
8
10
10
12
12
Changes in Supply
Changes in any of the factors other than price
causes the supply curve to shift either:
• Decrease in Supply shifts to the Left (Less
supplied at each price)
OR
• Increase in Supply shifts to the Right (More
supplied at each price)
Supply Practice Answers
Cost to Produce
Cost of Resources Falls
Cost of Resources
Rises
Productivity Decreases
Productivity Increases
New Technology
Higher Taxes
Lower Taxes
Government Pays
Subsidy
Amount of Supply
Supply Curve Shifts
Price
1. The government of Pago-Paga adds a subsidy
to boomerang production.
S
S1
Quantity
Price
2. Boomerang producers also produce Frisbees. The
price of Frisbees goes up.
S1
S
Quantity
Price
3. The government of Pago-Paga adds a new tax
to boomerang production.
S1
S
Quantity
Price
4. Boomerang producers expect an increase in
the popularity of boomerangs worldwide.
S
S1
Quantity
Price
5. The price of plastic, a major input in boomerang
production, increases.
S1
S
Quantity
Price
6. Pago-Pagan workers are introduced to coffee as PagoPaga become integrated into the world market and their
productivity increases drastically.
S
S1
Quantity
Price
7. Come up with your own story about boomerangs and the PagoPagans. Write down the story, draw the change in supply based on the
story, and explain why supply changed.
S
Quantity
Do Now
Supply and Demand at Work
• Markets bring buyers and sellers together.
• The forces of supply and demand work
together in markets to establish prices.
• In our economy, prices form the basis of
economic decisions.
Supply and Demand at Work
• Supply and Demand Schedule can be
combined into one chart.
Price per Widget ($)
Quantity Demanded
of Widget per day
Quantity Supplied of
Widget per day
$5
2
10
$4
4
8
$3
6
6
$2
8
4
$1
10
2
Supply and Demand at Work
Supply and Demand for Widgets
$6
$5
Price per Widget
$4
$3
Demand Curve
Supply Curve
$2
$1
$0
0
2
4
6
Quantity of Widgets
8
10
12
Supply and Demand at Work
•
A surplus is the amount by which the quantity
supplied is higher than the quantity demanded.
– A surplus signals that the price is too high.
– At that price, consumers will not buy all of the
product that suppliers are willing to supply.
– In a competitive market, a surplus will not last.
Sellers will lower their price to sell their goods.
Supply and Demand at Work
•Suppose that the price in
the Widget market is $4.
Supply and Demand for Widgets
•At $4, Quantity
demanded will be 4
Widgets
$6
Surplus
•At $4, Quantity supplied
will be 8 Widgets.
$5
•At $4, there will be a
surplus of 4 Widgets.
Price per Widget
$4
$3
Demand Curve
Supply Curve
$2
$1
$0
0
2
4
6
Quantity of Widgets
8
10
12
Supply and Demand at Work
• A shortage is the amount by which the quantity
demanded is higher than the quantity supplied
– A shortage signals that the price is too low.
– At that price, suppliers will not supply all of the
product that consumers are willing to buy.
– In a competitive market, a shortage will not last.
Sellers will raise their price.
Supply and Demand at Work
•Suppose that the price in
the Widget market is $2.
Supply and Demand for Widgets
$6
•At $2, Quantity supplied
will be 4 Widgets
$5
•At $2, Quantity
demanded will be 8
Widgets.
•At $2, there will be a
shortage of 4 Widgets.
Price per Widget
$4
$3
Demand Curve
Supply Curve
$2
$1
Shortage
$0
0
2
4
6
8
10
12
Supply and Demand at Work
•
When operating without restriction, our market
economy eliminates shortages and surpluses.
–
–
•
Over time, a surplus forces the price down and a shortage
forces the price up until supply and demand are balanced.
The point where they achieve balance is the equilibrium price.
At this price, neither a surplus nor a shortage exists.
Once the market price reaches equilibrium, it tends to stay
there until either supply or demand changes.
–
When that happens, a temporary surplus or shortage occurs
until the price adjusts to reach a new equilibrium price.
Supply and Demand at Work
•Suppose that the price in
the Widget market is $3.
Supply and Demand for Widgets
•At $3, Quantity supplied
will be 6 Widgets
$6
•At $3, Quantity
demanded will be 6
Widgets.
$5
•At $3, there will be
neither a surplus or a
shortage.
Price per Widget
$4
$3
Demand Curve
Supply Curve
$2
$1
$0
0
2
4
6
Quantity of Widgets
8
10
12
Supply and Demand Practice
Answers
Supply and Demand for Boomerangs
$12
Surplus
$10
Price per Boomerang
$8
$6
Demand
Supply
$4
$2
$0
0
2
4
6
Quantity of Boomerangs
8
10
12
Supply and Demand for Boomerangs
$12
$10
Price per Boomerang
$8
$6
Demand
Supply
$4
$2
Shortage
$0
0
2
4
6
Quantity of Boomerangs
8
10
12
Supply and Demand for Boomerangs
$12
Market Equilibrium
$10
Price per Boomerang
$8
$6
Demand
Supply
$4
6
$2
$0
0
2
4
6
Quantity of Boomerangs
8
10
12
Supply and Demand for Boomerangs
$12
$10
Price per Boomerang
$8
Original Demand
$6
Supply
New Demand
$4
$2
$0
0
2
4
6
8
Quantity of Boomerangs
10
12
14
16
1. The income of the Chapel Hill townies declines
Price
after an early loss during March Madness.
S
P1
P2
D
D1
Q2
Q1
Quantity
Price
2. Chapel Hill is named one of the most beautiful
towns in North Carolina and tourism doubles
S
P2
P1
D1
D
Q1
Q2
Quantity
Price
3. The price of blue ties decreases. (Blue ties are
a substitute good for purple ties)
S
P1
P2
D1
Q2
Q1
D
Quantity
Price
4. The Federal government has been warning the
public about the possibility of a recession and job loss
in the RDU area. (Think expectations!)
S
P1
P2
D1
Q2
Q1
D
Quantity
Price
5. The price of purple striped shirts decreases (Purple
striped shirts are a complement to purple ties)
S
P2
P1
D1
D
Q1
Q2
Quantity
6. The price of silk increases (ties are made with silk).
Price
S1
S
P2
P1
D
Q2 Q1
Quantity
Price
7. The government adds a subsidy to tie production.
S
S1
P1
P2
D
Q1
Q2
Quantity
Price
8. After the release of Alan Greenspan’s first jazz flute
album, purple tie producers are expecting a huge increase
in demand and thus an increase in the price.
S
S1
P1
P2
D
Q1
Q2
Quantity
9. Congress enacts new tax on the production of purple
ties.
Price
S1
S
P2
P1
D
Q2
Q1
Quantity
Price
10. As the popularity of purple ties sweeps the greater
Orange County area, new producers enter the purple tie
market.
S
S1
P1
P2
D
Q1
Q2
Quantity
Price
11. Purple ties are named by GQ magazine as a “must have”
for all young professionals. At the same time, a new textile
machine decreases the cost of producing purple ties.
S
S1
P1
D1
D
Q1
Q2
Quantity
12. The price of pink ties (a related good that most purple tie producers also
produce) rises as spring approaches. Tie consumers in Chapel Hill begin to
expect purple ties to be put on sale since spring is coming, so they put off
purchasing.
Price
S1
S
P1
D1
Q2
Q1
D
Quantity
Do Now
• define cycle.
– What are some events that occur in cycles?
– What do all of these events have in common?
• The economy of a nation also moves in a
cycle. Sometimes the economy grows and
other times the economy shrinks.
• Three important economic measures relate to
these alternating periods of growth and
decline.
1. Gross Domestic Product: measure of the size of the economy.
It is the total value, in dollars, of all final goods and services
produced in the country during a single year. Final goods are
goods sold to their users.
• GDP is expressed in terms of money. This enables us to
compare the relative worth of goods and services, which is
more meaningful than simply numbers of products
– Current (nominal) GDP ‐ Measured in inflation‐distorted
dollars
– Real GDP ‐ Converts nation’s annual output into constant
dollars by taking out inflationary increases in prices.
• When prices increase, GDP would go up even if the economy
was not growing.
• To avoid this false impression, economist use real GDP.
2. Unemployment Rate‐ The percentage of people in the
civilian labor force who are not working but are looking for
jobs. The civilian labor force includes all civilians 16 years or
older who are either working or looking for work.
Four Types of unemployment
1. frictional: involves people who are temporarily between
jobs
2. structural: caused by a mismatch between job seekers
and job openings; technological: form of structural
unemployment caused by extensive use of technology in
many industries
3. seasonal: temporary unemployment due to conditions
that prevail during certain seasons of the year
4. cyclical: unemployment caused by lack of overall demand
in the economy
3. Inflation: is an increase in the general price
level.
– Measuring Inflation: Consumer Price Index‐ To
track inflation, the government samples prices
every month for about 400 products commonly
used by consumers. The rate of inflation is the
change in the average level of prices as measured
by the CPI
“The Story of Inflation”
Hunger In America
• http://www.pbs.org/moyers/journal/0411200
8/watch.html
• The business cycle (or economic cycle) refers to
the short‐term fluctuations of economic activity
along its long term growth trend. Project the
attached business cycle visual before discussing
phases of the business cycle. There are four
phases to the business cycle:
– 1. Expansion‐ Real GDP (production) growing and
unemployment rate usually falls.
– 2. Peaks‐ Highest point of expansion. Economists can
only measure once contraction begins.
– 3. Recession‐ Real GDP (production) decreases for 6
consecutive months; unemployment rate usually
increases. An extended recession is called a
depression.
– 4. Troughs‐ Lowest point of the recession. Economists
can only measure once expansion begins