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Copy of Business Cycle

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Andrew Biggs

on 17 April 2015

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Transcript of Copy of Business Cycle

Background photo by t.shigesa
Business Cycle
GDP at high rate
Unemployment at lowest rate
Peak business performance
GDP begins to fall
Unemployment begins to rise
Business sales fall due to new competition or fact that most willing customers already own the product
GDP is at lowest rate
Unemployment is at highest rate
Business makes little money, has to cut costs and change strategies
GDP begins to rise again
Unemployment begins to fall
Business makes aggressive marketing and sales changes, begins to see profit
Gross Domestic Product
The total value of all final goods and services produced in a particular economy; the dollar value
When the economy is expanding firms expect sales and profits to keep rising. Therefore, they may invest in the expansion of old plants in order to increase the plants productivity and capacity. This creates jobs and helps increase GDP and maintain expansion.
But at somepoint firms decide they have expanded enough or that demand for their product has dropped, therefore raising unemployment by laying off workers and slowing production. some firms may follow suit and bring the economy into a recession.
Interest Rate
When credit is used consumers are charged and interest rate.
As interest rates rise, investment dries us, as does job growth. Less investment means less output and employment.
As interest rates lower, companies borrow money to make new investments which leads to jobs in the economy
Negative External Shocks:
Oil Supply
Wars Interrupt the Normal Trade Relations
Droughts that Severely Reduce Crop Harvest
GDP Declines and the Price Level Rises.

Positive External Shocks:
Discovery of Large Deposits of Oil
Bountiful Harvests
AS Curve Shifts to the Right Which Increases the GDP
Full transcript