1. Economics for Journalists
Week 3: Circles & Cycles: How economies work
Jeffrey Timmermans
Monday, 6 February, 12

2. Review: Supply
& Demand
✤ Demand is based on the
Price
value consumers attach to Supply
goods & services as well as
their income & substitute
goods Market
Price
✤ Supply is determined by
suppliers’ costs
Demand
✤ The market price is a Quantity
summary of the supply &
demand in the market
Monday, 6 February, 12

3. Review: Supply
& Demand
✤ Demand is based on the
Price
value consumers attach to Supply
goods & services as well as
their income & substitute New Price
goods
{
Market Add’l
Price Suppliers
✤ Supply is determined by New
Demand
suppliers’ costs
Demand
✤ The market price is a Quantity
summary of the supply &
demand in the market
Monday, 6 February, 12

4. What kind of product is this?
Price
Supply
Market
Price
Demand
Quantity
Monday, 6 February, 12

5. What kind of product is this?
Price
Supply
New Price
Market
Price
Demand
Q1 Quantity
Monday, 6 February, 12

6. What kind of product is this?
Price
Supply
Market
Price
Demand
Q1 Quantity
Monday, 6 February, 12

7. What kind of product is this?
Price
Supply
Market
Price
New Price
Demand
Q1 Quantity
Q2
Monday, 6 February, 12

8. Government Policy: Rent control
Price
Supply
Market
Price
Demand
Quantity
Monday, 6 February, 12

9. Government Policy: Rent control
Price
Supply
Market
Price
Mandated
Price
{ Supply
Gap
Demand
Quantity Quantity Quantity
Supplied Demanded
Monday, 6 February, 12

10. Types of economies
Command Free-market
Economy Economy
Total No gov’t
intervention intervention
U.S.
Hong Kong
N. Korea
Sweden
Monday, 6 February, 12

11. Circular Flow Model
Monday, 6 February, 12

12. Circular Flow with Savings
Monday, 6 February, 12

13. Circular Flow with Inventory
Monday, 6 February, 12

14. The Business Cycle
Real output
Peak Trend line
ry
Re
ce
ove
ss
io
Rec
n
Re
ry
ce
ove
ss
io
n
Rec
Re
ce
ss
io
n
Trough
Time
Monday, 6 February, 12

15. U.S. Economic Growth
(1940-2010)
Source: St. Louis Federal Reserve Bank
Monday, 6 February, 12

16. U.S. Business Cycle (1970-1980)
Source: St. Louis Federal Reserve Bank
Monday, 6 February, 12

17. Why do economies grow over
time?
Monday, 6 February, 12

18. Why do economies grow over
time?
✤ Population growth
✤ Investment
✤ Accumulated knowledge
✤ Improved productivity
✤ Better technology
Monday, 6 February, 12

19. What’s a recession?
Monday, 6 February, 12

20. What’s a recession?
✤ Two consecutive quarters of declining economic output
Monday, 6 February, 12

21. What’s a recession?
✤ Two consecutive quarters of declining economic output
✤ In the U.S., whatever the National Bureau of Economic Research
(NBER) says it is!
Monday, 6 February, 12

22. The Regulatory Cycle
Crisis in un- or under-
Recession regulated area Deregulation
Politicians respond to Politicians respond to
people’s anger companies
Regulation,
followed by quiet
period Lobbyists/companies Growth
seek deregulation
Monday, 6 February, 12

23. Market Cycles:
Dow Theory
✤ Charles Dow (1851-1902)
founded Dow Jones & The Wall
Street Journal
✤ Dow noticed that prices on
markets follow both long-term
and short-term trends
✤ Short-term trends are
reactionary and won’t
necessarily derail long-term
trend Source: Library of Congress
Monday, 6 February, 12

24. Dow Theory: key assumptions
✤ The theory assumes the price of an asset traded on a market reflects
all available information
✤ A market price is the sum of all fears and the sum of all hopes
✤ Because a market price reflects everything market participants
expect will happen, prices are forward looking
✤ Prices are news!
Monday, 6 February, 12

25. Remember...
✤ Journalists can provide perspective and context:
✤ A recession isn’t the end of the world
✤ A growth & recovery phase won’t go on forever
✤ This time isn’t different!
✤ Regulatory response isn’t always appropriate and is influenced by
political considerations
Monday, 6 February, 12