The Business Cycle Mr. Donecker 10/4/12. Bell Activity Last year, the President said, “Right now, a company can get a tax break for moving a plant over-seas.”

The Business CycleMr. Donecker 10/4/12

Bell Activity

• Last year, the President said, “Right now, a company can get a tax break for moving a plant over-seas.”

• Which part(s) of GDP would this affect?

• How would the overall GDP be affected?

Cycle

• What is a cycle?• Any complete round, or series of occurrences that

repeats or is repeated

• Where are there cycles in our lives?• Carbon cycle, water cycle, nitrogen cycle, life cycle

The Business Cycle

• The movement of the economy from one condition to another and back again

• (the ups and downs of GDP)

Prosperity

Recession

Depression

Recove

ry

Prosperity

– Low Unemployment– High Demand for goods and services– High Productivity– Called a “boom” period

Prosperity

Recession

– Decrease in Demand for goods– Decrease in Productivity– Rise in Unemployment

Recession

Ripple Effect

Depression

• A prolonged recession that spreads to multiple sectors of our economy– High Unemployment– Low Demand for goods and services– Low Productivity

Depression

Recovery

– Jobs begin to increase (lower unemployment)– Demand for goods and services increase– Productivity increases

Recove

ry

Which Phase?

• High employment, increasing wages, more new or expanding businesses

• Prosperity

• Consumer demand increases due to lower unemployment

• Recovery

• GDP falls for a prolonged period of time due to overwhelming Unemployment

• Depression

• Rising Unemployment, unsold goods, falling prices• Recession

Ripple Effect

• The Great Depression was caused by a fall in spending.

• What does this statement mean?

Ripple Effect

• In the 1920’s• Consumers for the first time could buy houses and

cars on an installment plan• These purchases created jobs

– Building houses and cars– Furniture and appliances to fill houses– Production of steel and other materials for houses/cars– New plants, facilities and equipment

• Governments built paved roads for the new automobiles and electric plants and water and sewage facilities to service the new households

Ripple Effect

• The prosperity of workers in all these industries allowed them to spend a lot of money, thus providing income to other workers — income which they in turn spent to buy other goods and services.

Ripple Effect

• At the end of the 1920’s• Business firms slowed their expansion of new

plants and machinery

• If you work in a factory producing machinery…

• STAND UP – you are now unemployed because companies are spending less on machinery

Ripple Effect

• At the end of the 1920’s• Sales new automobiles began to fall

• If you work selling cars…• STAND UP – you are now unemployed because

sales of new cars are down

Ripple Effect

• Because car sales fall• Car dealers cancel orders from car manufacturers• Manufacturers lay off employees due to decrease

in production

• If you are an autoworker…• STAND UP – you are now unemployed because

demand for new car production is down

Ripple Effect

• Because manufactures slow down production of new cars

• Auto factories cancel their orders for steel and other raw materials used to make cars

• If you work as a steel worker• STAND UP – you are now unemployed because

the demand for steel is down

Ripple Effect

• At the end of the 1920’s• Sales of homes began to fall

• If you work in Construction • STAND UP – you are now unemployed because

new house development declines

Ripple Effect

• Because home sales are down• Furniture sales are down

• If you work in furniture sales• STAND UP – you are now unemployed

• Because furniture sales are down• Orders for furniture manufacturing are down

• If you work in a furniture factory• STAND UP – you are now unemployed

Ripple Effect

• Look at all the unemployed people

• Those of you still employed…• Are you nervous for your jobs?

• Unemployed people don’t buy new things

• If you work selling clothes• STAND UP – you are now unemployed

Ripple Effect

• People who are unemployed don’t eat at restaurants

• If you work in a restaurant• STAND UP – you are now unemployed

Ripple Effect

• Unemployed people don’t buy expensive food items– This means lower profits for grocery stores

• If you work at a grocery store• STAND UP – you are now unemployed due to a

decrease in profits

Ripple Effect

• But bad economic times don’t last forever

• Goods wear out making it necessary for consumers to buy new goods ex. Cars

• If you work in car sales • SIT DOWN – you are reemployed

Ripple Effect

• Because more cars are being sold• Orders to the manufacturer increase• Orders to the steel manufactures increase

• If you work in car or steel manufacturing• SIT DOWN – you are now reemployed

Ripple Effect

• When more people are employed • More new homes are built

• If you work in construction• SIT DOWN – you are now reemployed

• If you work in furniture sales and production• SIT DOWN – you are now reemployed

Ripple Effect

• When more people are employed• More people eat out, buy new clothes, and higher

priced groceries

• If you work at a restaurant, grocery store, or selling clothing

• SIT DOWN – you are now reemployed

Ripple Effect

• As purchases of various new products rise• business firms expand production and buy new

machinery and equipment

• If you work selling machinery• SIT DOWN – you are now reemployed