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The Business Cycle

The Business Cycle. The Business Cycle. Four things that affect the Business Cycle. 1. business investment 2 . interest rates and credit 3. consumer expectations 4. external shocks. Definitions. Real GDP per capita - Real GDP divided by the total population

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The Business Cycle

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  1. The Business Cycle

  2. The Business Cycle

  3. Four things that affect the Business Cycle • 1. business investment • 2. interest rates and credit • 3. consumer expectations • 4. external shocks

  4. 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

  5. American Savings Rate

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

  7. 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

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