Topic 9 Business Cycle, Unemployment and Inflation

Topic 9 Business Cycle, Unemployment and Inflation -...

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Business Cycles, Unemployment, Inflation, and Growth
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Business Cycle The business cycle is the upward and downward movements of levels of GDP and refers to the period of expansions and contractions in the level of economic activities around its long- term growth trend.
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Level of real output Time Peak Peak Peak Trough Trough Peak : Business Activity reach temporary maximum Recession: A period of decline in total output, income, and employment Expansion: a period which real GDP, income, and employment rise. Phase of Business Cycle
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Phase of Business Cycle
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Explanation based on assumption of economy fluctuation is due to “shock”, and the price is “sticky”. Causation of Business Cycle Unexpected reduce on total spending Firms can’t lower price, but only lower production GDP fall, less labor needed. Economy enter recession. Unexpected rise on total spending, output, or income Price sticky, consumer buy larger volume of goods. Firm increase production GDP rise, more labor needed. Economy enter expansion. Immediate cyclical change on real out put and employment
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Cyclical impact on durable and Nondurable goods Production on capital goods (housing, commercial building, heavy equipment…) and consumer durables (automobile, personal computers…) are effected most by the business cycle. Industries that produce non durable goods are somewhat insulated from the most severe effects of recession. Cyclical impact
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