Government

Introduction to Economics

Part 3

Business CycleThe business cycle is the periodic but irregular up-and-down movements in economic activity.

Parts of the Business CyclePeak (boom)– Highest point

in the economic cycle.Economy is at its best and will

likely begin to contract.

Recession (contraction)– decline in the economies performance that could lead to depression.Not long term and does not

always impact other economies

Trough (depression)– A sustained economic downturn that impacts our economy and that of other countries. Lowest economic point

Recovery (expansion)- Economic activity begins to pick up and depression begins to end. Economic growth occurs

Parts of the Business Cycle, con’t

History of the U.S. EconomyLook up the economic patterns of the United

States from the 1800’s until now and map out the various points on the business cycle to what was happening in the United States.

Remember this slide?…I’m going to simplify this.

Most introductory economics courses refer to 3 Economic Questions.

3 Basic Economic QuestionsWhat to produce?

With limited resources, deciding what is needed the most is often a factor in determining what will be produced. What is the need or want of this product?

What is the point of making a product that no one is going to buy? Businesses need to make money…so they choose products that people want.

3 Basic Questions Cont…How should it be produced?

Technology, labor, capital, etc.

getting the lowest cost to make the product.

Are we going to make the product from scratch or will a machine be making the product.

What will each option cost?Will having new technology

allow us to lower our expenses?

3 Basic Questions Cont…Whom should it be produced for?

Who is going to use this product?Did Apple market the iPod to the

large population of elderly people in the U.S. or the youth? Why?

Most goods and services are distributed to individuals through a price system.

If you want it and can afford to buy it…you will.

Products can also be distributed through other means; force, first come, lottery, majority, etc.

Recap…What are the three basic economic

questions?Compare and contrast micro and macro

economics. Describe the business cycle.

InflationThe rate at which the general level of prices

for goods and services is rising, and, subsequently, purchasing power is falling.As inflation rises, every dollar will buy a

smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.

RecessionA significant decline in activity across the

economy, lasting longer than a few months. It is visible in industrial production,

employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

A recession generally lasts from six to 18 months, and interest rates usually fall in during these months to stimulate the economy by offering cheap rates at which to borrow money.

Recession, con’t…

Recession is a normal (albeit unpleasant) part of the business cycle; however, one-time crisis events can often trigger the onset of a recession.

The global recession of 2008-2009 brought a great amount of attention to the risky investment strategies used by many large financial institutions, along with the truly global nature of the financial system.

As a result of such a wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered extreme set-backs and numerous government policies were implemented to help prevent a similar future financial crisis

Recession, con’t…

What is the connection between Inflation and Recession?

Which came first the chicken or the recession?In many cases the causes of recession can be

confusing. Can inflation cause/worsen a recession? Or does a recession cause/worsen inflation? Both…a recession does not always have a single cause, but

can be caused by many factors. Once a recession begins, it’s impact is usually felt all over the economy, including inflation. Inflation occurs without a recession, but a dramatic change in the value of money can push an unstable economy into a recession.

Look at the causes or influences of our most recent recessionPoor business practices – started the

recessionIt was likely on its way already

Inflation

Decline in the stock market

Increased foreclosures/ drop in housing pricesExplaining "Recession" and "Inflation" Clearly

ReviewWhat is the basic Economic question?

What are the four factors of production?

What are trade offs and opportunity costs?

What are the three basic economic questions?

Define microeconomics and macroeconomics.

What are inflation and recession?