Business Cycle. Measuring Economic Activities Gross Domestic Product (GDP): The total market value($ value) of all the goods and services produced within.
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Measuring Economic Activities• Gross Domestic Product (GDP): The total market
value($ value) of all the goods and services produced within the borders of a nation during a specified period.
• Usually reported on an annual basis• Per Capita GDP: A nations GDP divided by its
population
• Consumer Price Index (CPI): Calculated each month by the Bureau of Labor Statistics• Price index determined by measuring the prices of a
“market basket”• Ex. Food, housing, medical care, entertainment
• A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock.
• Its timing is random and unpredictable. A business cycle is identified as a sequence of four phases.
Phases of the Business Cycle
• Expansion (A speedup in the pace of economic activity) Rise in real GDP
• Recovery: right after a trough, economy is getting better
• Prosperity: right before a peak, economy is at its best
• economic growth
• Contraction (A slowdown in the pace of economic activity)
• Economic decline marked by falling GDP• Recession: 6 straight months of contraction• Depression: Especially long contraction
Phases of the Business Cycle
• Trough (The lower turning point of a business cycle, where a contraction turns into an expansion)
• GDP stops falling
• Peak (The upper turning of a business cycle) • When GDP stops rising
**A trough and peak both represent a turning point in the business cycle**
Business Cycle Continued…
• Where we are in a given business cycle affects our lives every day. If the economy doesn’t create enough jobs, high school & college graduates have trouble finding work.
• If prices rise, but incomes do not, our ability to buy what we need declines.
National Debt• The National Debt is the total amount of money
the Federal Government owes to bondholders.
• The debt is owed to investors who hold treasury bonds. If you invest in a treasury bond, the money that one uses to buy the bond is used to finance the National Government.
• A bond is essential an IOU issued by the government as a way for them to borrow money.
Problems of the National Debt
• Reduces the funds available for businesses to invest.
• The government must pay interest to bondholders, the more the government borrows, the more interest it has to pay.
• Roughly, to pay off the National Debt today, each citizen would have to pay just over $40,083.53
• When President Bush took office over 10 years ago, the national debt was at $5.6 trillion; since then, big budget surpluses have collapsed into huge deficits, and the debt has shot up more than 50 percent.
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