Chpt 8 - Real Output of the U.S. economy Chapter 8 Business...

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1 1 Chapter 8 Business Cycles 2 Real Output of the U.S. economy 3 Introduction ± The observed changes in overall economic activity can be decomposed into two parts: ² Long-term growth path : the changes in economic performance over a long period of time, say between 1870 and 2007. ² Business cycles : repeated episodes of expansions and declines in output. ± This chapter is about the business cycles. We will discuss some of the basic features of business cycles. 4 What is a business cycle ? ± Business cycles are defined broadly as fluctuations of aggregate economic variables (not just real GDP). ± Other indicators of economic activity, such as employment, investment and financial market variables, are also important. ± These variables often move together in a similar pattern. ± The tendency of many economic variables to move together over the business cycle is called comovement . 5 How to describe a business cycle ? 6 How to describe a business cycle ? ± The period of time during which aggregate economic activity is falling is a contraction or recession . ± If the recession is particularly severe, it becomes a depression . ± The low point of the contraction is called a trough . ± After reaching the trough, aggregate economic activity begins to recover.
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2 7 How to describe a business cycle ? ± The period of time during which aggregate economic activity grows is an expansion or a boom . ± The high point of the expansion is called a peak . ± A complete cycle is measured from peak to peak or trough to trough . 8 Other Properties ± Business cycles are recurrent but not periodic . ± These cycles are not periodic in the sense that ² they do not occur at regular, predictable intervals of time (in fact no one knows for sure when they will happen) ² they do not last for a fixed or predetermined length of time (once a cycle begins no one knows for sure when it will end). 9 Other Properties ± The duration of a complete business cycle can vary greatly, from about a year to more than a decade. ± Usually a downturn (from a peak to a trough) happens within a rather short period of time. ± But it may take years for the economy to recover from it and reach another peak. ± Business cycles are often asymmetric : the contraction period is short and sudden, the expansion period is long and slow. 10 Business Cycle Facts ± Business cycles are all alike in the sense that they share some common features. ± These common features are called the business cycle facts . ± These facts are about the comovements among economic
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This note was uploaded on 08/11/2008 for the course ECON 103a taught by Professor Suen during the Winter '08 term at UC Riverside.

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Chpt 8 - Real Output of the U.S. economy Chapter 8 Business...

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