BUSINESS FLUCTUATIONS AND UNEMPLOYMENT

THE BUSINESS CYCLE -

A. TROUGH - NATIONAL OUTPUT IS LOWEST - ECONOMY IN RECESSION - PEOPLE HOLD OFF ON PURCHASES, JOBS ARE HARD TO FIND,

B. EXPANSION - NATIONAL OUTPUT RISES. - BEND UP PRESSURE TO PURCHASE IS UNLEASHED -

C. PEAK - NATIONAL OUTPUT HIGHEST - BEND UP DEMAND FOR GOODS EXHAUSTED, OVERSUPPLY OF GOODS,

THE MARKET CYCLE EXAMPLES

1. THE AMERICAN FARMER

THE FARM PROBLEM IN THE UNITED STATES

BRIEF HISTORY - DURING WORLD WAR I THE AMERICAN FARM INDUSTRY WAS BOOMING. WHY?? INCREASE DEMAND DOMESTICALLY AND INTERNATIONALLY FOR AMERICAN FARM PRODUCTS BECAUSE OF THE WAR.

AT THE END OF THE WAR THIS PEAK DEMAND DROPPED OFF

IN ADDITION NEW TECHNOLOGY MADE AMERICAN FARMERS MORE AND MORE PRODUCTIVE.

IN 1921 FARM PRICES FELL 40%

BY 1932 FARM PRICES HAD FALLEN 75%

THE AVERAGE FARMER WAS EARNING $2,651 IN 1919. HIS AVERAGE INCOME DROPPED TO $855 PER YEAR BY 1932

(THOSE MOVIES ABOUT THE FARM DEPRESSION WERE TRUE TO LIFE)

WHO WAS HIT THE HARDEST???? - THE SMALL FARMER

THE SMALL FARMER COULD LEAST AFFORD THE NEW TECHNOLOGY AND LIVED ON THE EDGE OF SURVIVAL. IN 1910 THERE WERE 3.7 MILLION SMALL FARMS TODAY THERE ARE ONLY 1 MILLION SMALL FARMS

THE FARM POPULATION HAS BEEN REDUCED BY 23 MILLION PEOPLE SINCE 1910

IN THE PERIOD 1980 TO 1986 THE UNITED STATES EXPERIENCED A SECOND FARM DEPRESSION

1. RISING FUEL COSTS

2. RISING FERTILIZER COSTS

3. RISING INTEREST RATES

4. DECLINING LAND VALUES

5. DECLINING EXPORTS

EXPORTED TECHNOLOGY HELPED THIRD WORLD

WELL INTENDED PROGRAMS - PEACE CORPS - TRAINED LOCAL FARMERS TO USE WESTERN TECHNOLOGY

THE BUSINESS CYCLE - REAL ESTATE -

A. WHEN - U.S. ECONOMY RECOVERING FROM A RECESSION

1. INTEREST RATES LOWERED

2. DEMAND FOR HOUSING INCREASES

3. BUILDERS CANNOT MET DEMAND - SELLERS MARKET

B. WHEN - U.S. ECONOMY BOOMING

1. DEMAND FOR HOUSING STILL STRONG

2. INTEREST RATES RISING

3. BUILDERS MEETING DEMAND

4. BACKLOG OF DEMAND SATISFIED

C. WHEN - U.S. ECONOMY TURNING DOWN

1. DEMAND FOR HOUSING WEAK

2. INTEREST RATES HIGH

3. BUILDERS HAVE A BACKLOG OF UNSOLD HOMES

D. WHEN - U.S. Economy ENTERS RECESSION

1. DEMAND FOR HOUSING VERY WEAK

2. INTEREST RATES DECLINING

3. SOME BUILDERS GO OUT OF BUSINESS

THE BUSINESS CYCLE AND INVESTMENTS

THE BUSINESS CYCLE - RECESSION HITS LOW BOND PRICES HIT LOW AND TURN UP, STOCK PRICES CONTINUE DOWN, COMMODITY PRICES HIT TOP - 2. STOCK PRICES TURN UP COMMODITY PRICES DECLINE. 3 - BOND PRICES RISE, STOCK PRICES RISE COMMODITY PRICES DECLINE 4. COMMODITY PRICES HIT BOTTOM, BOND PRICES HIT TOP, PRICES CONTINUE TO RISE 5. COMMODITY PRICES BEGIN TO RISE , BOND PRICES BEGIN TO FALL , STOCK PRICES CONTINUE TO RISE. 6. BOND PRICES FALL, COMMODITY PRICES RISE, STOCK PRICES PEAK AND BEGIN DECLINE.

THE BUSINESS CYCLE AND UNEMPLOYMENT

1. UNEMPLOYMENT RISES OR FALLS WITH THE BUSINESS CYCLE

2. THE COSTS OF UNEMPLOYMENT

A. ECONOMIC COSTS

I. LOSS OF PRODUCTION FROM WORKERS

II. THERE RISES A GAP BETWEEN POTENTIAL GNP AND REAL GNP

B. NONECONOMIC COSTS

I. PSYCHOLOGICAL IMPACT ON FAMILIES

II. PSYCHOLOGICAL IMPACT ON INDIVIDUALS

a. SENSE OF SELF WORTH IS QUESTIONED

b. CRIME, DRUGS, BEHAVIOR PROBLEMS

CLASSICAL ECONOMIST - THOUGHT THAT THE CAPITALISTIC SYSTEM WOULD RIGHT ITSELF - IF LEFT ALONE

MARXIST COUNTER IDEAS - CAPITALISM WOULD COLLAPSE UNDER ITS OWN CONTRADICTIONS - WORKERS WOULD REALIZE EXPLOITATION AND REMOVE BUSINESS OWNERS.