Business Cycle - Stocks

1
Business Cycle - Stocks

• Ch. 23, Section 2

2
The Business Cycle

• The Business Cycle (AKA The Economic
  Rollercoaster)
• The ups downs of the economy
• Alternating periods of growth decline
• 4 Phases
• Expansion (Also known as Prosperity or Recovery)
• Economy is improving
• Businesses produce more needing more employees
• Higher employment means higher wages
• Higher wages mean higher consumption
• Higher consumption means more production

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The Business Cycle

• 2. Boom
• Economic activity is at its peak
• Peak the highest point of the boom
• Businesses are working at full capacity
• Law of Diminishing Returns as a business adds
  more resources to production profits will rise
  until a point where more resources begin reducing
  profits

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Business Cycle
Peak
Trough
Boom
Expansion
Decline/ Recession
Recovery/ Prosperity
5
The Business Cycle

• 3. Decline (Contraction)
• The economy is slowing down
• Production is cut down
• Workers are laid off
• 4. Recession
• Occurs when Real GDP goes down over 6 months
• Real GDP shows economys production after the
  distortions of price increases have been removed
• Eliminates impression that output has gone up
  when only prices have gone up
• Lowest period of production
• Unemployment is high
• People do not buy as much
• Trough lowest point of a recession
• Depression a severe recession

6
Business Cycle
7
Unemployment

• Unemployment Rate
• Percentage of labor force without jobs but
  actively looking
• Unemployment reduces living standards, disrupts
  families causes a loss of self respect
• Reaches its highest during a recession
• Types of Unemployment
• Cyclical associated with the ups downs of the
  economy
• Structural changes in the economy based on
  technology
• Seasonal based on the weather
• Frictional based on people being terminated or
  looking for new jobs
• Current Unemployment rate
• Videos
• Dealing with unemployment
• The Pain of Unemployment
• Slow Recovery

8
Types of Unemployment Game

• Sara, worker at Ford, loses his job because of a
  machine that can it do his job more efficiently.
• Structural
• Zach works at the Sugar Mountain Ski Lodge.
• Seasonal
• Jordan, Toms friend at Ford, loses her job
  because of low car sales.
• Cyclical
• Tori is tired of working at In-n-Out Burger
  quits her job.
• Frictional
• Tyler has just graduated from college and is
  unemployed.
• Frictional
• Elizabeth lost her job at the neighborhood
  swimming pool after Labor Day.
• Seasonal
• Mr. Cleland is laid off due to the tight budget
  of ISS for 2012-2013 school year.
• Cyclical
• Tina loses her job as a cleaning lady because she
  is replace by the RoboMaid.
• Structural

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Inflation Rate World Wide
10
The Great Depression

• The Great Depression
• Began in 1929 with a stock market crash
• Black Tuesday, October 29, 1929
• Many saw it as the end of capitalism
• Bank runs people tried to get all their cash
  out of banks, banks ran out of money
• Herbert Hoover was president
• Hoovervilles were names of shanties (homeless
  towns) during the Depression

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The Great Depression
Black Tuesday
Hoovervilles
Suffering
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What is the highest point in the business cycle?

1. Boom
2. Trough
3. Expansion
4. Peak

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The Great Depression

• The New Deal
• Franklin D. Roosevelts plan to end the
  depression
• First 100 Days
• Restored faith in banks Bank holiday
• Fireside Chats
• Financial Reform
• Glass-Steagall Act 1933
• Banks could not invest in the stock market
• Repealed in 1980. Some believe the reason we are
  in this financial mess today. (move up)
• FDIC created
• Guarantees usually 100,000, but from Oct. 3,
  2008 to December 31, 2013 up to 250,000
• Federal Securities Act 1933
• SEC created as a result of this act
• No stock market fraud
• Splits the nations economy
• Fiscal policy the Government
• Monetary policy the Federal Reserve

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FDRs Fireside Chat

• First Fireside Chat

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Measuring the Economy

• Inflation
• Decline in the value of money
• Purchasing power amount the dollar can buy
• Measured by the Consumer Price Index Implicit
  GDP price deflator
• Some Relief at the end of 2008

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Measuring the Economy

• Consumer Price Index (CPI)
• Samples prices for 400 products commonly used
• CPI Data
• Change in price over time of goods services the
  average household uses
• Base year 1982-1984 the average of these
  years is compared to each year
• Implicit GDP Price Deflator
• Takes inflation out of GDP for year to year
  comparisons
• Base year 1987

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Measuring the Economy

• GDP Categories
• Consumer goods bought by consumers for final
  use
• Business (Capital) goods bought to be used by a
  business to produce other goods
• Government goods anything bought by the
  federal, state and local governments
• Net Exports
• The difference in what the nation buys sells
  with other countries
• Export anything sold to another country
• Import anything bought from other countries

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Trade Deficit
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Imports vs. Exports
20
Stocks

• Corporations sell stock to raise financial
  capital
• People buy stock to make money
• Dividends share of a corporations profits
• Capital Gain when stock is sold for more than
  it originally cost Rule Buy low, sell high

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Stocks

• Stock Indexes
• Statistical measures that track stock prices over
  time
• The ticker
• Ex Dow Jones Industrial Average (DJIA) or
  Standard Poors (SP)
• Stock Exchanges
• Stock market where stock is bought sold
• Ex NYSE largest most prestigious
• Others American Stock Exchange, Chicago
  Mercantile Exchange, Electronic NASDAQ
• Changes in stock prices are based on market
  forces of supply demand

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Stocks

• Bull Market
• Investors expect growth, profits high
  unemployment low
• Prices tend to rise
• Bear Market
• Investors are pessimistic, profits drop
  unemployment rises
• Prices fall
• Changes to Stock Prices
• Change in profits
• Rumors (externalities)
• News
• Stockbroker person who buys sells stock

23
Struggles in the Economy

• http//www.pbs.org/newshour/video/module_byid.html
  ?snews01n3647q87f