Chapter 14.1 Notes

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Chapter 14.1 Notes

• Business Cycles

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• Business Cycle- the ups and downs of real GDP ( 2
  phases)
• A. Recession- when economy/Real GDP
• declines for at least six months
• 1. a recession begins when real GDP
• starts going down
• 2. a recession ends when real GDP hits
• a Trough/bottom and
  starts going up
• B. Expansion- when economy/ GDP
  increases
• after it hits a trough
• 1. an expansion ends when real GDP
• reaches a Peak

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• C. Depression when real GDP goes down
• severely for an extended time
• II. 3 causes of the Great Depression?
• A. Big gap between rich and poor
• B. people borrowed on easy credit and
• couldnt afford to pay back
• C. other nations were poor couldnt afford to
• buy U.S. stuff
• III. What causes business cycle / Real GDP to go
  up
• and down
• A. Amount of investment by businesses changes

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• B. level of Innovation/Inventions changes
• C. Interest rates change
• D. External shocks (ex. War, oil prices)
• IV. 2 methods to predict how the business cycle
  will perform
• A. Spending by consumers, gov., business, net
  exports
• B. Index of leading indicators- 10 statistics
  about economy(ex. avg. hrs. worked)