Advanced Economics Week #5

Spring 2012

Advanced Economics 4/23/12http://mrmilewski.com

• OBJECTIVE: Examine the business cycle. • I. Journal#14pt.A

-Watch the following:-IMF's Lagarde: Global Economy Sees 'Dark Clouds on

the Horizon'• II. Journal#14pt.B

-notes on business cycles• Notice: Parent Teacher Conference Thursday April 26th

• Notice: Chapter#10&13 Test Friday April 27th

• Notice: 29 Days until the Senior’s Last Day!

The Business Cycle• Business cycle - the rise and fall of GDP over

time.• GDP – Gross Domestic Product• GDP= C+I+G+(X-M)• C – consumer• I – business• G – government• X – exports• M - imports

Phases of the Business Cycle

• Ch#14 sec#1 p.376

The Recession Phase of the Business Cycle

• There are two phases of the business cycle• Recession – when real GDP declines for two

quarters in a row (6 months)• A recession begins following a peak• Peak – the point where GDP stops going up• A recession ends at a trough• Trough – the turnaround point where GDP stops

going down.

The Expansion Phase of the Business Cycle• Expansion – period of recovery from a recession. • Expansion begins at the trough of the business

cycle.• Expansion ends when the business cycle reaches a

new peak.• Since WWII, the average recession lasted 11

months. The average expansion lasted 43 months.• The expansion that began in March 1991 & almost

ended in March 2001 is the longest in history. (1st and 3rd quarters of 2001 GDP dropped)

http://www.willisms.com/archives/stronggdpgrowth.gif

The End of the Depression• Massive government spending

during World War II added a huge stimulant to the economy for most of the early 1940s.

• Recession returned in 1945, but it did not last.

• As soon as the war was over, consumers went on a buying binge that stimulated expansion again.

• Since 1965, there has been a recurring pattern of recessions and expansions.

• After 1980, however, recessions occurred less frequently.

• The expansion that began in 1991 was the longest expansion in United States history.

http://2.bp.blogspot.com/_orkXxp0bhEA/SXPdlLy0TpI/AAAAAAAAPP4/YFm4rhv0rSU/s400/090118-nd-unemployment.jpg

Why Business Cycles?• No one theory seems to

explain past business cycles, or serves as a way to predict future ones.

• Changes in capital expenditures are one cause of business cycles.

• When the economy is expanding, businesses expect future sales to be high, so they invest heavily in capital goods.

• After a while, businesses may decide they have expanded enough and they begin to pull back on their capital investments.

http://granitegrok.com/pix/US_GDP_Growth.jpg

Inventory Adjustments & Innovation• Inventory adjustments, or changes

in the level of business inventories, are a second possible cause of business cycles

• Some businesses cut back on inventories at the first sign of an economic slowdown and then build them back up again at the first sign of an upturn

• When a business innovates, it often gains an edge on its competitors because its costs go down or its sales go up

• The imitating companies must invest heavily to do this, and an investment boom followshttp://images.businessweek.com/mz/07/13/0713_30busout.gif

Monetary Policy• A fourth possible cause of business cycles is the credit

and loan policies of the Federal Reserve System.• When “easy money” policies are in effect, interest rates

are low and loans are easy to get.• Eventually the increased demand for loans causes interest

rates to rise, which in turn discourages new borrowers.• As borrowing and spending slow down, the level of

economic activity declines.

Advanced Economics 4/24/12http://mrmilewski.com

• OBJECTIVE: Examine the business cycle. • I. Journal#15pt.A

-Watch the following:-Social Security Slated to Run Dry in 2033, Trustees

Warn• II. Journal#15pt.B

-notes on types of unemployment• Notice: Parent Teacher Conference Thursday April 26th

• Notice: Chapter#10&13 Test Friday April 27th

• Notice: 28 Days until the Senior’s Last Day!

Frictional Unemployment• Unemployment caused by workers in between

jobs for any reason.• This type of unemployment is a minor problem

because these people are short term unemployed.

• Examples:• New people entering the labor force• People who left their old jobs to find new jobs• P. 384

Structural Unemployment• Unemployment that occurs when a job

becomes obsolete or the demand for that job falls.

• Serious type of unemployment• Examples:• When people stopped buying buggies and

started buying cars• When employers become leaner and meaner• P.385

Cyclical Unemployment• Unemployment directly related to swings in

the business cycle.• Serious, but end when business cycle returns

to expansion.• Examples:• Automotive industry during the last recession• Home building during the last recession • P.386

Seasonal Unemployment• Unemployment resulting from changes in weather

conditions on certain products• Difference between seasonal and cyclical is the period of

measurement • Cyclical occurs over several quarters or years.• Seasonal takes place every year regardless of the health of

the economy.• Examples:• Concrete laborers in northern U.S. cities• Farm laborers• P. 386

Technological Unemployment

• Unemployment caused when workers with less skill, talent, or education are replaced by machines or other equipment that does their jobs.

• P.386

Advanced Economics 4/25/12http://mrmilewski.com

• OBJECTIVE: Examine various concepts in Microeconomics.

• I. Administrative Stuff-attendance

• II. Journal#16-notes on film: -Standard Deviants-Macroeconomics

• Notice: Parent Teacher Conference Tomorrow• Notice: Chapter#10&13 Test Friday April 27th

• Notice: 27 Days until the Senior’s Last Day!

Advanced Economics 4/26/12http://mrmilewski.com

• OBJECTIVE: Review for Chapter#10&13 Test. • I. Administrative Stuff

-attendance• II. Review for Chapter#10&13 Test

-test over 10.4, 13.2, 13.3,&13.4: • Notice: Parent Teacher Conference Today 12:30-

3PM• Notice: Chapter#10&13 Test Tomorrow April 27th

• Notice: 26 Days until the Senior’s Last Day!

Schedule Thursday 4/26/12

• 1st hour 7:41 – 8:15 am• 2nd hour 8:20 – 8:54 am• 3rd hour 8:59 – 9:33 am• 4th hour 9:38 – 10:12 am• 5th hour 10:17 – 10:51 am

Advanced Economics 4/27/12http://mrmilewski.com

• OBJECTIVE: Demonstrate mastery of Chapter#10&13.

• I. Administrative Stuff-attendance

• II. Chapter#10&13 Test-test over 10.4, 13.2, 13.3,&13.4:

• III. Textbook Collection• Notice: 25 Days until the Senior’s Last Day!