The Shape of a Recession

Big Questions

• How are we doing? (Yes, again)

• Why do recessions happen?

• How does the government affect the economy (and you and me)?

Chapter 14: Economic Instability

• Section 1: The Business Cycle

The Business Cycle

• Phases:

• Recession, Expansion, Peak, Trough

RG

DP

Time

The Business Cycle

Output Gap Link

The Business Cycle

• Business cycle = systematic ups and downs of real GDP

• 2 phases of biz. cycle:• Recession begins at peak and ends at trough—

peak/trough at least 6 mo’s apart• Expansion is the recovery from a recession• Severe recessions can become depressions.

Real GDP ‘75-’10

Directions: Color vertical stripes representing recession years. Color Key- Recession ______ Expansion white

At the top of the graph, label the Peaks (P) and the Troughs (T). P

List of recessions

16 Recessions Since 1919

That’s an average of one every 6 years.

(They’ve become less frequent since 1919.)

Causes

• Businesses– By predicting recessions they can

cause and/or prolong recessions!

• Consumers– cause “bubbles” (housing, etc.)– save money when they get scared.

This makes recessions last longer!

II. Causes

• The tulip-bulb bubble.

II. Causes

• The dot-com bubble.

II. Causes

• Federal Reserve

U.S. Real Gross Domestic Product

Great Depression

World War II

Oil Prices Quadruple/ Vietnam War

Great Recession

dot coms,

9/11

Iranian Revolution

Fed Raises Interest Rates to Fight Inflation

Double Dip

Oil, debt, and bank reg’s

“tight” monetary policy

Business Cycle Art

• Draw a business cycle and label it appropriately (peaks, troughs, expansions, recessions).

• Along the business cycle, draw pictures/people/symbols showing:– what’s happening in the economy.– how people are feeling at each stage.– what the government may be doing.– what businesses may be doing.

Real GDP ‘75-’10

% Change, Consumer Price Index

Green bars indicate beginning of recessions.

Green bars indicate beginning of recessions.

Green bars indicate beginning of recessions.

Directions: Color vertical stripes representing recession years. Color Key- Recession ______ Expansion white

At the top of the graph, label the Peaks (P) and the Troughs (T). P

The business cycle, unemployment, and inflation.

An Activity

Hayek, Keynes Rap Battle