Warm ups *What are two examples of people not included in the unemployment rate?

Transcription

1 Warm ups *What are two examples of people not included in the unemployment rate? *What are the four major types of spending used to calculate GDP?

2 Lesson Objective: *describe four phases of business cycle *explain causes of inflation and deflation *identify importance of interest rates

3 The Business Cycle *business cycle: movement of the economy from one condition to another and back again *there are 4 phases to the business cycle

4 The Business Cycle: Prosperity *prosperity:a period when most people who want to work are working, businesses are producing goods and services in record numbers, wages are good, and the GDP growth increases

5 The Business Cycle: Recession *recession: a period when demand begins to decrease, businesses lower production, unemployment rises, and GDP growth slows for 6 months or more

6 The Snowball Effect *Can you explain how the decrease in demand can cause a snowball effect that can lead to a recession?

7 The Business Cycle: Depression *Depression: a phase marked by a prolonged period of high unemployment, weak consumer sales, and business failures Key Point: A recession does not ALWAYS become a depression. We haven t had one since the Great Depression in

8 Avoiding a Depression? *Do you know what some ways are to stop a recession from becoming a depression?

9 The Business Cycle: Recovery *recovery: unemployment decreases, demand for goods and services increases, and GDP begins to rise again *How do you think consumers confidence in the economy contributes to a recovery or a recession?

10 Inflation *inflation: increase in the general level of prices; the buying power of your money decreases *The Federal Reserve closely monitors inflation and tries to keep it under control

11 *In the same calendar year, Zimbabwe printed $10 bills, and $100 billion dollar bills Inflation: Extreme Examples *After WWI, inflation was so bad in Germany that people burnt their money to heat their homes, or used money for kids toys *In Zimbabwe, within the last decade, their yearly inflation rate got as high as around 79 billion percent (yes, you read that correctly)

12 Causes of Inflation *demand for goods and services is greater than supply (when things are in high demand and short supply, prices increase) *too much inflation is bad (obviously), but around 2% can be a good thing *producers make higher profits from charging higher prices, so they can hire more workers

13 Causes of Inflation *demand for goods and services is greater than supply (when things are in high demand and short supply, prices increase) *too much inflation is bad (obviously), but around 2% can be a good thing *producers make higher profits from charging higher prices, so they can hire more workers

14 Causes of Inflation *demand for goods and services is greater than supply (when things are in high demand and short supply, prices increase) *too much inflation is bad (obviously), but around 2% can be a good thing *producers make higher profits from charging higher prices, so they can hire more workers

15 Price Index *price index: a number that compares prices in one year with some earlier year *prices for a group of selected items are measured over time to see how much inflation there is

16 Deflation *deflation: a decrease in the cost of goods, opposite of inflation *deflation usually occurs in periods of recession and depression *prices go lower because there is low demand, but people still have less money to buy the products

17 Interest Rates *interest rates simply represent the cost of borrowing money *they are the percentage extra that you will have to pay the individual or business from which you borrowed money

18 Interest Rates *The Federal Reserve will lower interest rates to encourage economic growth *Why would a low interest rate encourage economic growth?