Business Cycle &U.S. Economy

Understanding the past & seeing the future!

Economics-2015

Business Cycle• Economic systems go through periods of fast growth and slow

growth called the Business Cycle

• The U.S. economy is currently growing only moderately (GDP = +2.1%)

• The U.S. is still “recovering” from the Great Recession of 2009–Worst economic period since the Great Depression (1929)

GDP = C + I + G + (X-M)

Business CyclePeak

Exp

andi

ngPeak

Expa

ndin

gTrough

Contracting

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Standard Pattern

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DP

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Recessions• The U.S. enters a recession every 7-10 years

– 2 consecutive quarters of negative GDP is considered a recession

– Recessions typically last 16 months

• The Government attempts “to help” the economy during recessions– Federal Government: by ↓ taxes & ↑ Gov’t Spending

– Federal Reserve: by ↓ short term interest rates

Janet Yellen = current Chair of Fed

Business Cycle Worksheet

• GDP & Unemployment

Problems with U.S. Economy in 2015

Why below PPF?

Unemployed workers (labor)Underemployment of Human Capital Declining Labor Force ParticipationRecessions in EuropeSlow Growth in China

U.S. is currently operating below PPF Curve (point B on PPF)

A

B

Alphabet Recoveries

http://www.pbs.org/newshour/bb/business/jan-june09/econshape_06-23.html

Stock Market Cycles

The Stock Market also goes through a “business cycle”

Bull Markets = Over 20% rise from the trough

Bear Market = Over 20% fall from the peak

Stock Market Correction?

http://www.npr.org/2015/08/27/435273159/stock-markets-sudden-correction-might-not-impact-most-americans