Tue. 5/3
1. What does the phrase “life is like a rollercoaster”
mean?
 Economy is like a roller coaster as well.
Ch. 12 Gross Domestic Product
and Growth
12.2 Notes “Business Cycles”
Business Cycles
 Expansion: Growth in real
GDP
 Peak: GDP stops rising
 Contraction: period of
economic decline
 Recession: when GDP falls
for 2 consecutive qtrs
 Depression: extended
recession with high
unemployment, low factory
output
 Stagflation: decline in real
GDP with inflation
 Trough: GDP stops falling
What Keeps a Business Cycle Going
 Business Investment
 As econ expands firms invest in
infrastructure to cont to meet
demand
 Interest Rate and Credit
 When low, finance new
infrastructure through credit
 When high?
 Consumer Expectations
 Fear of recession, consumers
spend less
 External Shocks
 Disruptions that ripple
throughout the econ.
 Ie: war, drop in oil supply
Business Cycle Forecasting
 Leading Indicators




Health of stock market
Short term interest rates
Manufactures new orders
Capital goods: goods used in the
production of other goods
 Ie: petroleum
Checking for Understanding
1. Identify the phases of the business cycle.
2. Describe the four cycles that keep the business cycle
going.
3. How can interest rates push a economic cycle into
contraction?
4. Why is the stock market considered a leading
indicator of economic change?