Goodheart-Willcox Publisher | Marketing Dynamics | Chapter 10

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Objectives

• Give an example that shows how a change in one
  part of the economy can cause a change in another
  part.
• List the three phases of the business cycle.
• Make a graph of a business cycle and label the
  phases.

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Objectives

• Describe economic conditions during each phase of
  the business cycle.
• Describe the level of GDP and unemployment rate
  during each phase of the cycle.

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Marketing Terms

• expansion
• contraction
• business cycle
• upward spiral
• downward spiral

• prosperity
• recession
• depression
• recovery

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• The status of a market economy goes up and down,
  like a roller coaster

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Market EconomyDynamics

• A market economy is either
• growing or
• slowing

List some signs of economic growth.List some
signs of economic slowdown.
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Market EconomyDynamics

• Expansion
• period of economic growth
• prosperity
• economic good times
• Contraction
• period of economic slowdown
• hardship
• economic bad times

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Market EconomyDynamics

• Periods of expansion
• alternate with
• periods of contraction
• This alternation
• of economic expansion and contraction
• is called the business cycle

Expansion
Contraction
Expansion
Contraction
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Economic Spirals

• All parts of an economy are interconnected
• A change in one part
• can cause a change in another part

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Economic Spirals
Expansion

• Upward spiral
• When one part of the economy does well
• it causes other parts of the economy
• to do well

Workers buy more
Workers earn more
Company earns more
Sales up
Productivity up
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Economic Spirals

• Downward spiral
• When one part of the economy does poorly
• it causes other parts of the economy
• to do poorly

Productivity down
Sales down
Company earns less
Workers earn less
Workers buy less
Contraction
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The Business Cycle

• To understand business cycles
• economists make graphs
• They plot GDP or
• percent change in GDP
• over time
• Even though each business cycle
• is different
• each has the same basic shape

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GDP
Time
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How is the graph of a business cyclelike a
roller coaster?
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The Business Cycle

• Every business cycle graph has
• one peak (high point)
• one trough (low point)
• Every business cycle graph has
• one period of expansion
• one period of contraction

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The Business Cycle

• The high and low points on a graph help identify
  the three phases in each business cycle
• prosperity
• recession
• recovery

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Prosperity

• Prosperity
• occurs around the peak of the business cycle
• economic good times
• people doing well

What happens economicallyduring prosperity?
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Prosperity

• During a period of prosperity
• consumers buy more
• retail sales rise and inventories fall
• production increases
• businesses hire more workers
• Economic indicators
• GDP rises
• unemployment is low
• CPI and inflation rise only a little

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Recession

• Recession
• occurs on the down slope of the business cycle
• economic hard times
• people doing poorly

What happens economically during recession?
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Recession

• During a period of recession
• consumers buy less
• retail sales fall and inventory rises
• production slows
• businesses fire workers
• Economic indicators
• GDP falls
• unemployment rises

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Depression

• Depression
• economic contraction
• severe
• long lasting
• causes widespread economic hardship
• Great Depression
• 1929 to 1941

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Recovery

• Recovery
• occurs after a recession
• occurs on the up slope of a business cycle
• economy getting better
• people starting to do better

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Recovery

• During a recovery period
• consumers start buying more
• retail sales rise and inventories fall
• businesses start producing more
• businesses hire more people
• Economic indicators
• GDP rises
• unemployment starts falling

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Business Cycle and Economic Indicators

• Each phase of the business cycle
• has typical economic indicators
• Economists and marketers
• study economic indicators
• to predict what will happen in the economy
• to help make good business decisions

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Business Cycle and Economic Indicators Business Cycle and Economic Indicators Business Cycle and Economic Indicators Business Cycle and Economic Indicators Business Cycle and Economic Indicators
Prosperity before the peak Recession contraction Depression severe contraction Recovery expansion
GDP ? ? ??? ?
Unemployment Rate ? ? ??? ?
CPI/Inflation ? ? ? ?
Stock Market ? ? ??? ?
Sometimes before and during a depression,
inflation is very, very high.
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Review

• What is the difference between expansion and
  contraction in the economy?
• What is a business cycle?
• Describe the three phases in a business cycle.
• What is the impact of economic interconnectedness?

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Glossary

• business cycle. Alternating periods of expansion
  and contraction in the economy.
• contraction. Period of economic slowdown.
• depression. Economic slowdown that is very severe
  and lasts a long time.

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Glossary

• downward spiral. Process that starts moving
  downward slowly, and then starts moving faster
  and faster downward.
• expansion. Period of economic growth.
• prosperity. Economic good times, when people are
  doing well financially.

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Glossary

• recession. Period of economic contraction.
• recovery. Period after a recession during which
  the economy is expanding.
• upward spiral. Process that starts moving upward
  slowly, and then increases its upward movement
  faster and faster.