chap 23

chap 23 - A Business Fluctuations a Keynesian econ=...

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A. Business Fluctuations a. Keynesian econ= aggregate demand powerful impact on output/employment/prices in short run b. Business cycles: economy wide fluctuations in total national output/income/employment (2-10 yrs) w/ expansion or contraction i. 1 st part recession = period of decline (6mon-year) 1. depression=major recession scale/duration 2. consumer purchase decline sharply while inventory of durable goods (cars/etc) increase unexpectedly RGDP decrease 3. demand for labor falls 4. demand of crude materials decline with their prices (as output falls, inflation slows) 5. business profits fall ii. 2 nd part expansion = exact opposite of recession c. Business cycle theories i. Exogenous = sources of cycle fluctuations outside economy (war/revolution/election/weather/oil) ii. Internal = source inside economic system itself 1. every recession breeds revival and expansion (repeating chain) 2. multiplier-accelerator theory = rapid output growth stimulates investment which stimulates more output growth until capacity reached and growth slows. Slowing reduces
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chap 23 - A Business Fluctuations a Keynesian econ=...

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