The Business Cycle

The Business Cycle

Worksheet

Chapter 12 Section 2 Use the book to complete the

worksheet.

Four things that affect the Business Cycle

• 1. business investment• 2. interest rates and credit• 3. consumer expectations• 4. external shocks

Definitions

Real GDP per capita - Real GDP divided by the total population

labor productivity - the amount of output produced per worker

Saving – income that is not used for consumption

savings rate – the percentage of money income that is saved

American Savings Rate

The paradox of thrift

What happens to an economy if everyone became savers at the same time?

Capital Deepening

capital deepening - process of increasing the amount of capital per worker

It’s been found that capital deepening increases GDP growth.

Higher savings rates leads to higher investment which can lead to capital deepening

Three things that can affect capital deepening

population government taxes - bad: used to finance a war, pork

spending good: used to invest in infrastructure Foreign imports good or bad?Good: if the imports are used as

investments or improvements