Economic Conditions Change 2 2 Business Cycle Movement

Economic Conditions Change 2 -2

Business Cycle • Movement of the economy from one condition to another and back again. ▫ Recurring ups and downs of GDP

Business Cycle Prosperity Recovery Recession Depressio n

Prosperity • Peak of the business cycle ▫ ▫ Low unemployment High GDP High Productivity High Personal Income

Recession • Slowing down of the economy ▫ ▫ Demand decreases Businesses lower production Unemployment rises GDP slows for two or more quarters of the calendar year • May not be too serious or last long • Only affects certain businesses

Depression • When a recession deepens and spreads throughout the entire economy. ▫ ▫ ▫ GDP falls rapidly High unemployment Weak retail sales Business failures Great Depression (1930 -1940) � 25% unemployment rate

Recovery • Economic downturns do not last forever ▫ ▫ Unemployment begins to decrease Demand increases GDP begins to rise again Retail sales increase • May be fast or slow

Inflation • Increase in general level of prices • Usually occurs when supply is limited and demand is high • Is this a good thing?

Consumer Price Index • Compares prices of products in a one year time span • Necessities increase faster than non-essential items

Deflation • Decrease in general level of prices. • Usually occurs in recessions and depressions

Other Measures of Business Activity 2 -3

Capital Projects • Spending money on projects that will be used over a long period of time. ▫ Land, Buildings, Equipment, and New Projects ▫ Personal Savings, Stock Investments, and Bonds

Stock Market • Many organizations use stock as a method of income • Stock provides people with part ownership in the company

Bond Market • When a person purchases a bond: ▫ It is like a loan ▫ The organization must repay the person the amount of the bond plus interest

Government Debt • Government borrows money to pay for public buildings, highways, and parks. ▫ Budget Surplus �Government spends less than it takes in ▫ Budget Deficit �Spends more than it takes in �National Debt and Consumer Debt