30 - • Business cycles fluctuations in real GDP around...

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Econ 102 Lecture 30/01/2008 14:18:00 Growth Rate Calculation Recall growth rate formula : GDP 1991 –  GDP 1990  x100 o                                      GDP 1990 Suppose growth rate is constant at rate 4% per year since 1990. In 2008 it  doubles! The Power of Growth: Rule of 70 Economists use rule of 70 to compute how many years it takes for a GDP to  double o 70/g – number of years after which GDP doubles Going back to our example from the previous slide: 70/4=17.5 years (about  right!) Ex of Power of growth- o Between 1950-2004 average annual growth rate was: In Argentina less than 1% In Japan about 4.5% In US about 2.2% o These growth rates imply: Income in Japan doubles every 15 year, 30years in US and 70  in Argentina o In the long run it makes a huge difference Business Cycle Fluctuations
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Unformatted text preview: • Business cycles- fluctuations in real GDP around its long-term growth trend • Phases of the business cycle o Expansion- a period of real GDP increasing faster than usual o Contraction- a period of real GDP increasing slower than usual o Recession- a fall in real GDP of significant depth and duration. (technically NBER declares recessions in the US) o Depression- an unusually long severe recession. Last one in the US was in 1929 (The Great Depression) • Recessions Matter o Unemployment People lose jobs and cannot find jobs- loss of income – recession is a big deal for them 1% fall in output 3% more people are unemployed o Firms driven out of business Owners and stock holders unhappy 30/01/2008 14:18:00 ← 30/01/2008 14:18:00 30/01/2008 14:18:00 ←...
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This note was uploaded on 03/27/2008 for the course ECON 102 taught by Professor Drozd during the Spring '08 term at University of Wisconsin.

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30 - • Business cycles fluctuations in real GDP around...

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