Grade 12 – Economics Unit 2

THE BUSINESS CYCLE

The economy has 4 stages in the business cycle

Fluctuations occur repeatedly as the economy experiences with the

following turning points.

• Peak This is the highest point in the upswing of a

business cycle. This is generally through the expansion period

• Trough This is the lowest point in the downswing of

an economy. This is generally through the recession period.

PEAK

TROUGH

EXPANSION

This is between when an economy comes out of a through and toward a peak. Economic recovery also known as a boom.

RECESSION

The contraction phase is when the cycle goes down from the peak of a cycle to the trough of an economy.

Features of a business cycle in expansion phase

• The level of economic activity increases • More goods and services are produced as

the output of the country increases(Demand )

• Levels of employment increases (More jobs)• Household expenditure increases(Income)• Interest rate decreases (Loans)• Rate of inflation Increases(Control spending)

Features of a business cycle in recessionary phase

• The level of economic activity decrease• Fewer goods and services are produced(Demand

decreases as no money)• Employment decreases (Not enough money to

expand economy through jobs)• Spending declines(Income becomes less –

expenses increase)• Interest rates increase(Loan repayments increase)• Rate of inflation decreases

Explanation for the business cycle.

• Exogenous and “in”endogenous explanations.

Climate conditions(FLOODS) Changes in patterns of consumer spending

Technical advances(loss of jobs) Changes in level of investmentsUnexpected events(Wars) Changes in what and how to produce.

These are any of the abovewhich will cause the economy to spend money or lose money

INTERNAL -Factors which originate in the market system

EXTERNAL – outside market system

4 types of business cycles

• Kitchin cycle Business cycles which last between

3-5 years and are caused by businesses adapting their inventory levels. (liquidity and liabilities)

JOSEPH KITCHIN

• Kuznets cycles Business cycles which last between

15-20 years and are caused by the changes in building and construction industry. Think what Medupi and Kusile shafts are

causing for our economy!!

• Jugler cycles Business cycles which last between

7-11 years and are caused by the changes in net investments by business and government.

Kondratief cycles Business cycle which usually lasts up

to 50 years and longer and are caused by technological innovations, wars and discoveries of new resources.

Think John D Rockefeller

The effects of this video on business cycles???

Click the following link:http://www.youtube.com/watch?v=mA63xWGPI-k

ORhttp://video.search.yahoo.com/video/play?

p=men+who+built+america&vid=4afe066d76c320fbc3e917df4d1b5c1b&l=41%3A05&turl=http%3A%2F%2Fts4.mm.bing.net%2Fth%3Fid%3DVN.607997580533500599%26pid%3D15.1&rurl=http%3A%2F%2Fwww.dailymotion.com%2Fvideo%2Fx17joxr_1-6-the-men-who-built-america_shortfilms&tit=1_6+The+Men+Who+Built+America&c=7&sigr=12htif44c&sigt=10tct1hkm&ct=p&pstcat=politics&age=0&hsimp=yhs-yhsifmclone1&hspart=Babylon&type=br112dm34bs01af121962&tt=b

COMPLETE ACTIVITY ON PAGE 36-37 IN YOUR TEXTBOOK

Reference list.J. Bantjes, M. M. (2013). The Business Cycle. In M. M. J.

Bantjes, Focus Economics Grade 12 (pp. 22-30). Cape Town: Maskew Miller Longman.