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Chapter 3
EconomicActivity in aChanging World
Section 3.2
The BusinessCycle
Read to Learn
Describe the four stages of the business cycle.
Explain how individuals and government influence the economy.
The Main Idea
In a market economy, there is an economic cycle, which includes four stages: prosperity, recession, depression, and recovery. These are also the four stages of the business cycle. In the last few decades, we have experienced the economic cycle a number of times.
Key Concepts
Guiding the Economy
Four Stages of the Business Cycle
Key Terms
business cycle
prosperity
the rise and fall of economic activity over time
the peak of economicactivity
Key Terms
recession
depression
when economic activityslows down
a deep recession that affects the entire economy and lasts for several years
Discussion Starter
How does prosperity in another country might affect the economy in the United States?
Key Term
recoverya rise in business activity after a recession or depression
Guiding the Economy
Congress and the President enact laws that impact fiscal policy.
Government expenditures are often planned to guide the economy.
Guiding the Economy
The Federal Reserve (“the Fed”) is a government agency that guides the economy.
Guiding the Economy
The Federal Reserve
Regulates the amount of money in circulation
Controls interest rates
Controls the amount of
money loaned
State and local governments also take steps to influence their economies
Graphic Organizer
Four Stages of the Business Cycle
business cyclethe rise and fall of economic activity
The business cycle of one country can affect other trading partners.
Business Cycle ModelFigure 3.1
Prosperity
Prosperity results from low unemployment, high production of goods and services, and the opening of new businesses.
prosperitya peak of economic activity
Graphic Organizer
Characteristics of Prosperity
Higher wages
Greater demand for goods to be produced
More people buy houses, which creates work for builders
People buy more goods from other countries, which benefits those countries
Recession
During a recession, businesses produce less, so they need fewer workers.
recessionwhen economic activity slows down
Graphic Organizer
Characteristics of a Recession
Businesses produce less
Unemployment increases
People have less money to spend
Fewer goods and services are produced
The GDP declines
Recession
A recession in one industry can cause a ripple effect throughout the entire economy.
Depression
A depression can be limited to one country but usually spreads to related countries.
depressiona deep recession
Graphic Organizer
Characteristics of a Depression
High unemployment
Low production of goods and services
Can last for several years
Spreads to other countries
High number of unused manufacturing facilities
Very rare
Depression
The stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression.
Graphic Organizer
TheGreat
DepressionThe GDP fell
nearly 50percent
Unemploymentrose nearly800 percent
The averagemanufacturingwage was 5
cents an hour
Many banksaround the
countryfailed
The moneysupply fell
by one-third
Many townsand other civic bodies printed
their own money
“Depressionproof”
During the Great Depression, millions of people lost their homes and livelihoods.
A large percentage of middle-class Americans were able to keep their jobs. These people were in professions considered “depressionproof.”
Recovery
Production starts to increase during a recovery.
recoverya rise in business activity after a recession or depression
Recovery
Characteristics of a Recovery
People start going back to work
People have money to purchase goods and services
Demand for goods and services stimulates more production
New businesses open
Businesses become more innovative
Recovery
In 1939, the United States was beginning to recover from the depression when World War II began.
The war increased the rate of recovery because of the demand for production.
1. What is the stage that follows a recession or depression?
The recovery stage can happen after either a recession or a depression.
2. What is the difference between a recession and a depression?
A recession is a slight downturn; a depression is a major downturn.
3. Why may innovation play an important role in the recovery stage of a business cycle?
Innovation creates demand that leads to more employment and production, which leads to more demand.
Questions After you read pg. 47
Online Study Glencoe.com
After you Read
Homework
Critical Thinking
– During the Depression, the U.S. government established the Tennessee Valley Authority. Visit the TVA website and write a short report on how it spurred the recovery.
Chapter 3
EconomicActivity in aChanging World
Section 3.2
The BusinessCycle
End of
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