1.
What is monetary policy and who is in
charge of it?
2.
Describe “easy-money” and “tight
money” policies and explain the
purpose for each.
7.5 Analyze the economic indicators in the
business cycle.
 Gross Domestic Product (GDP)
 Value of all final goods and services produced w/in a
country’s borders
 Gross
National Product (GNP)
• value of goods and services produced by
domestically and on foreign soil.
 Real
 Per
GDP- adjusted for inflation
capita GDP- average per person
 when
GDP stops
rising, the height of
economic expansion

Increase in production has
stopped.

an economic decline
marked by falling GDP,
rising unemployment
• Recession- prolonged
contraction (6-18
months)
• Depression- long and
severe recession with
high unemployment, low
production


economy at lowest point
in economic contraction
Decline in production has stopped.

Period of economic
growth as measured by
rise in GDP
• Business prosperity
• falling unemployment
• More jobs come available

Fiscal policy-
• gov’t economic policy
involving tax revenue and
expenditures.
• Common fiscal policy in a
crisis is lower taxes and
increase spending

surge in asset prices to
levels significantly
above the fundamental
value of that asset
• Examples: housing
bubble, dotcom bubble,
etc.

https://www.youtube.c
om/watch?v=Y3keos_
GPT0
 1925
 The
to1929- stocks tripled in value
FED kept extremely low interest rates
 Economic
success encouraged excessive
speculation:
• Purchasing stocks simply based on price and the
assumption that you will be able to sell them for
profit.
1.
Large gap between rich and poor
2.
debt to buy consumer goods & stock
3.
Surpluses (overproduction)
4.
Fall in prices
 Overpriced
stocks hit peak then began
to fall
 Black
Tuesday (Oct 29, 1929), record
16.4 million shares sold
 Falling
prices to deflation to
unemployment
 FDR’s “New
Deal”
• Major increase in social programs, public works,
gov’t spending
• Stopped contraction but not full recovery until
WWII
 https://www.youtube.com/watch?v=oY88
WtEGmWs
Real
GDP
A
B
C
D
E
F
G H
I
J
K
L
M N
O P
Q R
S
T
V
X
Z
U
W
The economic cycle in pictures
Y
Time
A: Rising house construction
D: Rising homelessness
E: Rising demand for
steel
B: The number of job
vacancies rises
C: Increasing
hours of
overtime
F: More people use
pawnbrokers
J: Rising air traffic
G: Rising quantity of mail
I: Home delivered pizza
becomes more popular
H: Slower delivery
times
K: Falling share prices
L: Rising
lipstick
sales
M: Rising real income
N. Rising car sales
R: Imports of sewing
machines rise
P: Growing mountain of unsold
bricks
Q: Fast food shops cut their prices
O: More rental housing
available
U: More skips start
appearing on the
streets
S: Increasing
supply of
credit
X: Oil refineries report
a reduction in stocks
V: Sales of milk
chocolate start to
decline
T: The cost of
shipping goods
around the world
starts to rise
Y: Citizens Advice
Bureau gets more
callers
Z: Rising
government
spending
W: Shops delivering
lunchtime sandwiches
to offices raise their
prices