Lecture 11 - Agenda What is a Business Cycle? Business...

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1 11-1 Business Cycles 11-2 Agenda • What is a Business Cycle? • Business Cycle Facts. • Business Cycle Analysis: A Preview. 11-3 What Is a Business Cycle? • Business cycles are the short-run fluctuations in aggregate economic activity around its long-run growth path. 11-4 What Is a Business Cycle? Time Y
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2 11-5 What Is a Business Cycle? Components of a Business Cycle: ¾ Peak, ¾ Contraction or Recession, ¾ Trough, and ¾ Recovery and Expansion. 11-6 What Is a Business Cycle? Peak: ¾ The maximum level that aggregate economic activity reaches. Can only be determined after the fact. Generally, Y > Y n . 11-7 What Is a Business Cycle? Contractions, Recessions, or Hard Landing: ¾ Popular definition: 2 or more consecutive quarters of declining real GDP. ¾ Official definition: A period of significant decline in total output, income, employment, and trade, usually lasting from 6 months to a year, and marked by widespread contractions in many sectors of the economy. 11-8 What Is a Business Cycle? Growth Recession or Soft Landing: ¾ Official definition: A recurring period of slow growth in total output, income, employment, and trade, usually lasting a year or more. ¾ Actual growth rate is less than natural growth rate, resulting in a rising unemployment rate.
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3 11-9 What Is a Business Cycle? Depression: ¾ A recession that is major in both scale and duration. 11-10 What Is a Business Cycle? Trough: ¾ The minimum level that aggregate economic activity reaches. Can only be determined after the fact. Generally Y < Y n . 11-11 What Is a Business Cycle? Expansion: ¾ Official definition: A period of significant increase in total output, income, employment, and trade, usually lasting 6 months or more, and marked by widespread expansion in many sectors of the economy. 11-12 What Is a Business Cycle? Boom: ¾ An extended economic expansion where aggregate economic activity is high and rising. Y is well above Y n .
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4 11-13 What Is a Business Cycle? Expansions and contractions: ¾ The sequence from one peak to the next, or from one trough to the next, is a business cycle . ¾ Peaks and troughs are called turning points . Turning points are officially designated by the NBER Business Cycle Dating (BCD) Committee. Typically wait 9 – 24 months after the fact before deciding on turning points. 11-14 What is a Business Cycle? 11-15 What Is a Business Cycle? Main features of a business cycle: ¾ Pervasive in nature, ¾ Recurrent but not periodic, ¾ Persistent, and ¾ Each cycle differs in length and severity. Expansions are longer than recessions. 11-16 What Is a Business Cycle? Business cycle are pervasive in nature. ¾ Business cycles are fluctuations in aggregate economic activity , not fluctuations in a specific economic variable.
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Lecture 11 - Agenda What is a Business Cycle? Business...

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