Measuring Economic Performance

1
Measuring Economic Performance

• Business Cycle
• Economic Problems
• Causes of the Business Cycle

2
BUSINESS CYCLE

• Phases of the Business Cycle
• Recovery/Expansion general increase in business
  activity.
• Peak/Boom economy operating at high level.
  High employment, etc
• Contraction general decline in business
  activity.
• Trough economy at lowest point, will begin
  expansion.
• Recession economy in decline for a period of 6
  months.
• Depression extended period of contraction
  categorized by millions out of work and the
  collapse of major institutions.

Economic Indicators Consumer Price Index Consumer
Confidence Money Supply Durable goods GDP New
Businesses New Plants Equipment
Economic Indicators Total Inventories Unemployment
Stock Prices Personal Income Delayed
Deliveries Building Permits Manufacturing Labor
Hours
3
ECONOMIC PROBLEMS

• INFLATION
• During a period of inflation, prices of almost
  everything keep rising. Inflation is a natural
  occurrence, but high rates of inflation can cause
  a decline in business activity.
• Inflation is caused by an increase in the money
  supply. Money in circulation, or being spent.
• RECESSION
• During a period of recession, consumers are not
  spending money, thus business profits and
  productivity slow down. Periods of recession
  lead to higher rates of unemployment.

4
Causes of the Business Cycle

• Business Investment business decisions
• If businesses anticipate high sales in the
  future, they will likely invest contributes to
  expansion
• If businesses anticipate a lower sales, they will
  reduce production slows growth
• Government Activity
• Policies on taxing and spending (fiscal policy)
• Control over the money supply Federal Reserve
  (monetary policy)
• External Factors
• War increased government spending
• Discovery/Loss of raw materials