The Business Cycle
The Business Cycle
Worksheet
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Chapter 12 Section 2
Use the book to complete the
worksheet.
Four things that affect the
Business Cycle
• 1.
• 2.
• 3.
• 4.
business investment
interest rates and credit
consumer expectations
external shocks
Definitions
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Real GDP per capita - Real GDP
divided by the total population
labor productivity - the amount of
output produced per worker
Saving – income that is not used for
consumption
savings rate – the percentage of
money income that is saved
American Savings Rate
The paradox of thrift

What happens to an economy if
everyone became savers at the same
time?
Capital Deepening
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capital deepening - process of
increasing the amount of capital per
worker
It’s been found that capital
deepening increases GDP growth.
Higher savings rates leads to higher
investment which can lead to capital
deepening
Three things that can affect capital
deepening
population

government taxes bad: used to finance a war, pork
spending
good: used to invest in infrastructure

Foreign imports good or bad?
Good: if the imports are used as
investments or improvements
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