1. The Business Cycle

The business cycle refers to the ups and downs of the economy.

2. In many ways, economic activity is similar to a roller coaster ride with

a succession of climbs, peaks, downward plunges, and upturns.

How do you measure (assess) the economy?

• How does the government keep track of the United States economy?

• What are the measurements they use to determine how our economy is doing?

• What does a “strong” or “weak” economy look like?

3. Economic Indicators

• Gross Domestic Product (GDP)• Consumer Price Index (CPI)• Unemployment Rate

*We use these indicators to measure how the economy is

doing*

We use GDP, CPI and Unemployment rate to measure the economy the same way..

That a doctor uses a pulse, heart rate and tonsil check to measure a person’s health

4.Gross Domestic Product (GDP)

Gross Domestic Product

(GDP)

GDP is the dollar value of all final goods and services produced within a country’s borders in a given year. Final goods products in the form sold to consumers.

5. Examples of final products

• Cars• Houses • Ipods • Computers • Clothes • Food

6. Consumer Price Index (CPI)

ConsumerPrice Index(CPI)

Measures the cost of goods purchased by average U.S. households over time.

7. Prices go up and down because of inflation and deflation

8. Inflation and Deflation impact prices

• Inflation is an overall increase in the average level of prices.

• Deflation is a downward movement in average price levels.

• For example, in 2001 a gallon of gas cost $1.75 a gallon, while in 2005 the cost was $2.75—the result of inflation.

9. Consumer Price Index (CPI)- Measures the cost of goods purchased by average U.S.

households over time

• The U.S. Bureau of Labor Statistics calculates it.

10. Unemployment Rate

Unemployment Rate

It measures the percentage of the United States labor force that is unemployed

How the Unemployment rate is calculated?

It is calculated by simply dividing the number of unemployed people by the total number of

individuals in the labor force.

Who counts as unemployed?

11. Who counts as unemployed?

• An individual is only counted as unemployed, if the individual is over the age of 16 and is actively looking for a job.

12. Do these people count as unemployed?

Jim spent most of 2009 on the couch

17 year olds focused on having fun and friends

Retirees in the sunbelt Bodie dealing drugs

Do these people count as unemployed? NOJim spent most of 2009 on the

couch17 year olds focused on having fun and friends

Retirees in the sunbelt Bodie dealing drugs

13. Measuring if the economy is weak or strong

• If the GDP is in decline and unemployment is high, then the economy is considered weak

14. Measuring if the economy is weak or strong

• If the GDP is increasing and unemployment is low, then the economy is strong

By 2003-2004, the economy looked…

GDP (Gross National Product) Unemployment Rate

By 2003-2004, the economy looked…STRONG

GDP (Gross National Product) Unemployment Rate

16. EXPANSION• After reaching a trough, the economy

enters a period of expansion, an economic rise marked by increased GDP. The expansion phase creates more jobs and business prosperity. As the economy expands, there are larger incomes, increased spending and investment, and higher profits. Consumers go into debt to acquire big-ticket items, like new cars, appliances, and other durable goods.

16. CONTRACTION

• After reaching its peak, the economy enters a period of contraction, an economic decline marked by falling GDP. Unemployment begins to rise as factories begin to lay off workers. Consumer confidence in the economy weakens as business profits decrease. If the contraction continues for six months, the economy is said to be in a recession (when GDP declines for six months in a row).