Williamson_3e_IM_03 - Chapter 3 Business Cycle Measurement...

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Chapter 3 Business Cycle Measurement ± Teaching Goals Chapter 3 stresses the importance of observation as a foundation for scientific exploration in macroeconomics. Because there are mountains of data measurements about the macroeconomy, we need to begin to organize these data in a way that we can begin to look for regularities in the economy—regularities that we hope to explain. The cornerstone of business cycle analysis is deviations from trend in real GDP. Students must first understand the difference between long-run trends and deviations from trend in real GDP. One of the most exciting things about the study of business cycles is the observation that each of these recurring cycles is not unique. Because successive business cycles are more alike than they are different, we have the hope of providing an explanation of business cycles that can consistently be applied to each new cycle we encounter. These business cycle regularities, the “stylized facts” of business cycles, provide us with the first clues about the nature of the typical cycle. Although students may take some time to digest and remember these facts, it is important to be clear about the motivation for cataloging these facts. The plan of study of this text is to view the business cycle as a puzzle that we hope to solve. Our task is much the same as a detective trying to solve a murder mystery. The first task is to collect clues. The clues in the study of business cycles are the regularities chronicled in this chapter. Later on we will begin to encounter “suspect” causes of business cycles. In order to solve the mystery, we need to deduce the “who,” “what” and “why” of our mystery. We cannot begin the deduction process before first collecting the clues. Students need to understand this detective process. Otherwise, the clues presented in this chapter will be nothing more than a laundry list that they must memorize. ± Classroom Discussion Topics To get the ball rolling it might be useful to ask the students about whether they have concerns about recessions. Is the economy currently in a recession? When was the economy most recently in recession? The obvious candidate is the recession of 2001. One interesting point concerns the duration of the recession. Real GDP declined only in the first three quarters of 2001. However, even as of this writing in early 2007, many people perceive that the U.S. economy is still in a recession. This concern possibly reflects the fact that, through the third quarter of 2003, employment has continued to decrease and has only moderately recuperated since, as noted in the table below. Should we revise the definition of a recession by basing it on movements in employment or the unemployment rate? Which set of data provides a better picture of the overall well-being of the economy?
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Chapter 3 Business Cycle Measurement 21 Real GDP and Employment, 2000–2003 Quarter Real GDP (millions of 2000 dollars) Employment/ Population Ratio (%) 2000q1
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Williamson_3e_IM_03 - Chapter 3 Business Cycle Measurement...

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