The Business Cycle

1
The Business Cycle
2
The Business Cycle
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Four things that affect the Business Cycle

• 1. business investment
• 2. interest rates and credit
• 3. consumer expectations
• 4. external shocks

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Definitions

• 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

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American Savings Rate
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Capital Deepening

• capital deepening - process of increasing the
  amount of capital per worker
• Its been found that capital deepening increases
  GDP growth.
• Higher savings rates leads to higher investment
  which can lead to capital deepening

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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