Title: 2-2 Economic Conditions Change
12-2 Economic Conditions Change
- Objectives
- Describe the four phases of the business cycle
- Explain causes of inflation and deflation
- Identify the importance of interest rates
- Essential Question
- What causes the phases of the business cycle to
change?
2The Business Cycle
3The 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.
4Economic Cycle
- United States history has had patterns of good
times to bad times back to good times.
5Four Stages of the Business Cycle
- The business cycle of one country can affect
other trading partners.
business cycle the rise and fall of economic
activity
6Business Cycle
- The business cycle has four parts
- Prosperity
- Recession
- Depression
- Recovery
7Business Cycle Model
Figure 3.1
8Four Stages of the Business Cycle
- Prosperity is at the peak of the business cycle
- Demand for goods and services is very high..
- Unfortunately, it cools down and activity slows
down
prosperity a peak of economic activity
9Graphic 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
10Four Stages of the Business Cycle
- Recession is when the economy slows down.
- May not be too serious or too long, but signals
trouble for some peoples jobs. - Ripple Effect-drop in related business. Ex
home builder
recession when economic activity slows down
11Recession
- A recession in one industry can cause a ripple
effect throughout the entire economy.
12Graphic Organizer
Characteristics of a Recession
Businesses produce less which means they need less workers ? Unemployment increases People have less money to spend Fewer goods and services are produced The GDP declines
13What caused the Great Recession of 2008?
- The Causes and Effects of the 2008 Financial
Crisis
14Depression
- If a recession deepens and spreads throughout the
entire economy, a nation may move into a
depression.
depression A phase marked by a prolonged period
of high unemployment, weak consumer sales, and
business failures.
15Graphic 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
16Depression
- The stock market crash on October 29, 1929, or
Black Tuesday, marked the beginning of the
Great Depression. - Great Depression Video 1
- Great Depression Video
- Great Depression Video
17Two partner groups
- Get with a partner
- In your most creative way possible, using
construction paper, markers, color pencils etc - Make a diagram of the Business Cycle
- Dont just use the diagram I showed you, come up
with a way that shows a 4 stage cycle occurring
18Graphic Organizer
Many banksaround thecountryfailed
Unemploymentrose nearly800 percent
TheGreatDepression
Many towns and other civic bodies printed their
own money
The GDP fellnearly 50percent
The averagemanufacturingwage was 5 cents an
hour
The moneysupply fellby one-third
19Recovery
- Economic downturn doesnt go on forever.
- Gradual process
- Production starts to increase during a recovery.
recovery a rise in business activity after a
recession or depression
20Recovery
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
21Recovery
- 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. - What things were produced?
22Consumer Prices
- Inflation
- The buying power of the dollar decreases
- If prices increased 5 during the last year,
items that cost 100 then would now cost 105. - Ex Back when I was a kid..a candy bar was 45
cents!
23Rate of Inflation
- With inflation, ones buying power decreases.
inflation An increase in the general level of
prices.
24Rate of Inflation
Causes of Inflation
When demand is greater than supply War Increase in the price of raw materials Increase in expenses Increase in salaries Too much money circulating in the economy
25Rate of Inflation
- Deflation can occur when the supply of goods is
greater than the demand.
deflation a general decrease in the price of
goods and services
26Graphic Organizer
Deflation
Economy produces more goods than people want.
Sellers lower prices.
Sellers cut production.
People have less money to buy goods.
Demand continues to go down.
27- What is the stage that follows a recession or
depression?
The recovery stage can happen after either a
recession or a depression.
28- What is the difference between a recession and a
depression?
A recession is a slight downturn a depression is
a major downturn.
29- 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.