THE BUSINESS CYCLE
THE TRADE CYCLE / THE ECONOMIC CYCLE
The economy hits a peak – then
starts to contract again
fluctuations – ups and downs
BOOMS –







the economy works at full capacity
There is a rise in:
consumer demand
investment
production
prices
profits
employment
interest rates
RECESSION
- the economy works below its potential
There is a decline in:
 investment
 output
 employment
 profits
 commodity and share prices
 interest rates
If a downturn lasts:
for more than six months = recession
for a year or two = depression / slump
The cycle
upturn
boom
recovery
peak
downturn
trough
depression
recession
INTERNAL THEORIES
(endogenous)
Good times
- people consume
- people run up debts
-
-
THEN ?????
debts have to be paid
demand decreases
interest rates rise
people consume less
fall of demand

Spend?

Borrow?

Save?
Consumption falls if
- interest rates rise
- people are worried about the possibility
of losing their jobs
Result: no demand / no investment
EXTERNAL THEORIES
(exogenous)
Causes outside economic activity:
 scientific advances / technological inventions
 natural disasters
 elections / political shocks
 demographic changes
“Creative destruction”
-
-
-
free news on the internet threatens traditional
newspapers
downloading music and films threatens CD and
DVD industry
free internet telephone services (Skype) threaten
telecommunications companies
ECONOMY WORKS
STRONGLY WITH:






level of consumption
changes in interest rates
changes in people’s beliefs in the future
level of wages and salaries
level of investment
technological, political and demographical
changes
GROSS DOMESTIC PRODUCT
(GDP)
goods & services produced within a country’s borders
GDP = C + G + I + X
C = all private consumption/consumer spending
G = government spending
I = investment / all the country’s business
spending on capital (linked to consumption)
X = total net exports (total exports minus total
imports)
THE BUSINESS CYCLE
The regular pattern of a country’s economy


periods of success – growth
periods of difficulty – recession
happen regularly one after another
CHANGES IN ECONOMIC
GROWTH
1.
2.
3.
4.
peak / boom (high growth)
average growth / long-run trend
recession (negative growth)
trough / slump
INSERT THE FOLLOWING WORDS:
recession, investment, boom, downturn, recovery, upturn, trough,
peak, depression, consumption
The business cycle is like a roller coaster: there are periods when
_________________ rises, then follow periods when spending and
_______________________ fall, and unemployment rises.
A period during which economic activity increases is an __________
or upswing. If it lasts a long time it is called a ______________. The
highest point of the business cycle is a __________, which is followed
by a __________________ when the economic activity decreases.
If the economy keeps contracting for more than six months, it is
called a ______________ which may turn into a _______________ or
a slump. The lowest point is a _____________, which is followed by a
__________________, when economic activity increases again, and a
new cycle begins.
MATCH UP THE WORDS BELOW INTO PAIRS WITH OPPOSITE
MEANINGS:
supply, exogenous, spend, trough, depression, expand
boom - ________
contract - __________
demand - __________
endogenous - _________
peak - _________
save - ______
MATCH UP THE WORDS BELOW INTO PAIRS WITH SIMILAR
MEANINGS:
production, spending, encourage, slump, upturn, expand
boost - _____________
depression - _________
expenditure - _________
output - _____________
recovery - ____________
stimulate - ___________
MK: p. 114 – Vocabulary 1
p. 115 – Complete the sentences…
p. 116 – Vocabulary 2
RB: p. 29 - 36