The Business Cycle: Introduction to Macroeconomic Indicators

Introduction and Description Procedure The study and control of business cycles are the 1. Discuss what students have seen, heard, or heart of macroeconomics. Business cycles are experienced that leads them to think the a problem because output fluctuations lead to economy is doing well or poorly. Make sure unemployment and inflation. unemployment and inflation are included in the discussion. Current data for unemployment and Objectives inflation are available on the Bureau of Labor Statistics Web site: www.bls.gov. 1. Understand that the business cycle is made up of ups and downs in the economy. 2. Explain that the economy experiences ups and downs over time. The business cycle represents 2. Define the phases of the business cycle. these economic fluctuations. The current state 3. Understand the general meaning of the terms of the economy reflects the phase of the business unemployment, inflation, recession, depression, cycle the economy is in. Show the business cycle peak, trough, expansion, contraction, and recovery. Visual 1-11. More detailed understanding and definitions are 3. Use Visual 1-11 to discuss the phases of the included in lessons in later units. business cycle. Recession is defined as two Time Required consecutive quarters (six months) of negative growth in real GDP. A severe recession is called One class period or 45 minutes a depression, but there is no specific definition of a depression. The point after which output Materials starts to decline is called the peak of the business cycle, or the beginning of a recession. 1. Activity 1-10 The point after which output starts to increase 2. Visual 1-11 is called the trough of the business cycle. After the trough of the business cycle, the economy Bell Ringer goes into a recovery period. The period between Ask students how they think the economy is doing the trough and the next peak is called an right now—is it “up” or “down”? You can get an expansion. idea of where the economy is (i.e., the phase of the 4. Business cycles are defined in terms of output; business cycle) at http://www.nber.org/cycles.html, however, other variables follow the movement the Web site of the organization that dates U.S. of output. The unemployment rate rises during business cycles. recessions and falls during expansions. During a rapid expansion, the economy may experience inflation.

Advanced Placement Economics Macroeconomics: Teacher Resource Manual © Council for Economic Education, New York, N.Y. 33

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5. Emphasize these points about business is, we can’t tell when the economy cycles: has reached a peak until after it starts ■■ There is no consistent length of time for downward, and we can’t tell when it each phase. has reached a trough until after it starts upward. ■■ Business cycles are difficult to predict. ■■ We are only certain about the phase of 6. Have students complete Activity 1-10, and the business cycle in hindsight. That review the answers with students.

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CEE-APE_MACROSE-12-0101-MATM-Book.indb 34 29/04/14 7:59 PM 1 Macroeconomics VISUAL 1-11 Phases of the Business Cycle

Peak Contractionary (Recession) Expansionary (Recovery)

Expansionary (Recovery) REAL GDP Trough

Long-run trend of real GDP

PERIODS OF TIME

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