BA_315_LN_10_Business_Cycles

BA_315_LN_10_Business_Cycles - THE BUSINESS CYCLE Lecture...

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THE BUSINESS CYCLE Lecture Notes #10 BA 315: Economy, Industry, and Competitive Analysis Source: Schiller Chapter 10 Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon
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This chapter focuses on the nature of the business cycle and the problems of unemployment and inflation that accompany it. The principal goal of the chapter is to develop some understanding of why the participants in the economy view the business cycle as such a problem. As the first chapter in the macroeconomics section of the text, a number of new concepts and ideas related to macro failures and macro policies are introduced. The goal of this chapter is to help students develop some understanding for the three basic questions that follow: 1. What are business cycles? 2. What damage does unemployment cause? 3. Who is hurt by inflation? Concepts you will learn Macroeconomics unemployment rate real income Business cycle unemployment consumer price index (CPI) Production possibilities full employment inflation rate Nominal GDP inflation price stability Real GDP deflation Recession relative price Labor force nominal income
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Lecture Outline I. Headline: " Market in Panic as Stocks Are Dumped in 12,894,600 Share Day; Bankers Halt It." (The Crash of 1929) - An excerpt from a 1929 newspaper article captures the panic associated with the crash of Wall Street in 1929. A. Macroeconomics f Definition : Macroeconomics - The study of aggregate economic behavior, of the economy as a whole. B. Business Cycle f Definition: Business Cycle - Alternating periods of economic growth and contraction. Note: Figure 10.1 demonstrates the concept of business cycles. II. Assessing Macro Performance A. The three basic measures of macro performance are: 1. Output (GDP) growth 2. Unemployment 3. Inflation B. GDP growth 1. An economy’s potential output is reflected in its production possibilities curve. Trough Growth trend Peak REAL GDP (units per time period) TIME Peak Peak Trough The Business Cycle
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2. f Definition : Production Possibilities Curve – The alternative combinations of goods and services that could be produced in a given time period with all available resources and technology. 3. If we are producing inside the production possibilities curve, some resources are unnecessarily idle. 4. Headline : “Japan’s Economy Contracts” (Declining Output) The Japanese government said today that the nation’s economy contracted by an annualized rate of 2.4 percent during the July-to- September quarter confirming fears that recovery has stalled. A contraction in output indicates that an economy has moved to a point inside its production possibilities. Such contractions lower living standards and create more joblessness. 5.
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This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at Oregon.

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BA_315_LN_10_Business_Cycles - THE BUSINESS CYCLE Lecture...

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