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The Business Cycle

Describing the contraction and expansions phases of the business cycle.

Jed Narraway

on 7 April 2011

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Transcript of The Business Cycle

The Business Cycle The Business Cycle -For some reason (?) consumers lose confidence in their job security and stop buying "big ticket" items. -Less demand for products means less sales. -Companies lower prices to sell more. -Lower prices means less profits. To make money, companies must downsize. -Some employees lose jobs so companies can stay in business. DEPRESSION -Like recession but worse. -NO trust in job security. -Entire factories/branches might close to reduce overhead. -Jobs lost = High Unemployment rates. -Must have conservative spending or risk bankruptcy. -Now families will ONLY purchase essentials. Demand is lowest. - Falling stops. -Skeleton Staff. Minimum needed to operate. -Stagnant economy. (No fire, no hire.) - The banks lower interest rates to encourage purchasing. - More demand for goods = more new jobs - More hiring and spending, but many are still cautious because of the recent struggles. Recovery Boom - Consumers and businesses are enthusiastic - People not as concerned with "saving just in case" so more big ticket purchases. - As demand rises, sales and profits increase. - Businesses expand and hiring increases. - Highest demand - Highest purchasing - People are willing to pay, so...prices go up - Cost of living goes up - Best quality of life - Banks feel confident enough to raise interest rates. If prices go UP, interest rates are
UP and cost of living is UP...

What happens to spending? -Over time, products wear out and people must buy new ones. -Governments may create employment with large projects to encourage spending.
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