PRODUCTION INCREASES PEOPLE GO BACK TO WORK SPENDING INCREASES DEMAND STIMULATES PRODUCTION BUSINESSES MAY START TO INNOVATE A NEW PRODUCTS PROFITS INCREASE, BUSINESS GROWS, ECONOMIC ACTIVITY SOARS LOW UNEMPLOYMENT PRODUCTION IS HIGH NEW BUSINESSES OPEN HIGHER WAGES HIGH DEMAND FOR GOODS AND SERVICES SPENDING DECREASES DEMAND FOR PRODUCTS DECREASE BUSINESSES PRODUCE LESS UNEMPLOYMENT INCREASES GDP DECLINES PRICES INCREASE (INFLATION SETS IN) HIGH UNEMPLOYMENT LOW PRODUCTIVITY A DEEP DEPRESSION AFFECTS THE ENTIRE ECONOMY AND LAST FOR SEVERAL YEARS http://www.youtube.com/watch?v=QQ37RLXNAgc Throw a stone into a serene lake and you’ll create a ripple effect in the water A. B. C. D. E. Healthy A little sick So-so Mostly unhealthy Extremely unhealthy Does the economy seem better or worse than last year? How has the downturn affect you? Your family? What have you noticed in the community that shows the health of the economy? What have you noticed in the community that may prove or show it may be getting healthier? Throw a major change at a large employer and you’ll create a ripple effect in the economy A large auto factory that employed more than 1,000 people closed in Belvidere, IL. Population 28,350. What effect would it have on the community? BUSINESSES GOVERNMENT INDIVIDUALS CIRCULAR FLOW MODEL