The Business Cycle

A brief background of what it is, why it occurs, and why it is every

President’s worst nightmare!

What is it?

• What is a Business Cycle– A pattern of “up” and “down” economic

occurrences that repeat every 4 – 8 years– Repeats a minimum of two times per decade– All cycles contain the same patterns– Occurs regularly– All also have the same terms

The Parts of the Business Cycle

• #1 = Recession– A recession is very simply defined as “having little money and

nothing to buy with what little you have of it”.– All recessions are generally “bad” in nature– All recessions lead to a trough, but not all troughs lead to a

depression (see graphic)– In a recession, people usually stop spending money, stop

purchasing larges goods/services, and companies lay off workers.

– Average time of a recession = 3-5 years• #2 = Trough

– Period of time between the downward cycle and the upward cycle leading to recovery

– Time of a trough varies depending on steps taken in recession– Fiscal Policy usually determines how long both a recession and

a trough will last.

• Fiscal Policy– The govt changes the

amount of money

circulating in society.– Based on the federal

interest rate.#1

#2

• #3 = Recovery– Recovery occurs when the general nature of the economy is

rebounding.– This usually occurs when people begin to spend more money,

confidence in the banking system is up, and companies begin to hire more workers.

– This is also determined by Fiscal Policy• Lower interest loans means more money “floating” around• When money “floats” things are bought, when things are bought…

• #4 = Peak– Period of time between the recovery and recession.– Peaks can last for a decade or more.– Often come to an end when govt feels like there is too much

money in the system, and they change fiscal policy

#1

#2

#3

#4

Place These Events on the Business CycleNew Deal Begins

Hoover Elected as PresidentStart of WW IIBooming 20’sEnd of WW I

Election of FDRNew Deal Continues

Start of WW II

On your own, place these “modern” events on your own Business Cycle. Each event must have

three “bullets” below explaining why you placed that event where you did.

Circuit City Declares BankruptcyWar Begins in Iraq

Election of Pres. ObamaLockheed Martin Builds 15 F-16s

Bank Bailout(s)Terror Attacks of 9/11Election of Pres. Bush

GM Declares BankruptcyNavy orders 10 New Battleships