Economics and The Business Cycle

What is The Business Cycle?• The expansionary and contractionary phases in the growth

rate of the real GDP.

4 Phases of the Business Cycle

1. Expansion• The period in which the growth rate of output (GDP) is

increasing.2. Peak• The point at which the economy achieves the highest

growth in GDP.3. Contraction• The period in which the growth rate of output (GDP) is

shrinking4. Trough • A period of reduced economic activity.

How do we know where we are?You need to look at some economic indicators:These are things that help analyze trends in the market and help to predict where the economy is headed. They help to tell us the general health of the economy.

Examples of Economic Indicators:

What are some economic indicators?• Unemployment Rates• Bond Yields• Personal Income Levels• Consumer Price Index• GDP levels• Housing Starts• Consumer Confidence

Types of Economic Indicators

1. Leading- an indicator that signals the economy’s activity in advance.• Examples: New orders for capital goods by manufacturing

companies, housing starts2. Lagging – an indicator that signals the economy’s activity

after the fact.• Examples: Unemployment Rates, consumer confidence, GDP

3. Coincident – an indicator that signals the economy’s activity at the same time as it is occurring.• Examples: Stock Trade Volumes, industrial production levels.

Task - • Go to the Stats Canada website and become familiar with

some of the data that is published on the website. Now that you understand what economic indicators are, state where Canada’s economy is on the business cycle based on the data you have found on the STATS CANADA website.

• Find SIX (6) economic indicators which support your decision.• TWO (2) must be LEADING INDICATORS, TWO (2) must be

COINCIDENTAL INDICATORS using these four (4) indicators identify how they will impact TWO (2) LAGGING INDICATORS.

• ** Please record you answers in a word document as we will be revisiting this information next week