econ305_09_Oct21

econ305_09_Oct21 - basic facts about the business cycle how...

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slide 1 Short-run fluctuations basic facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in the short run and long run how the model of aggregate demand and aggregate supply can be used to analyze the short-run and long-run effects of “shocks.”
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slide 2 Facts about the business cycle GDP growth averages 3–3.5 percent per year over the long run with large fluctuations in the short run. Consumption and investment fluctuate with GDP, but consumption tends to be less volatile and investment more volatile than GDP. Unemployment rises during recessions and falls during expansions. Okun’s Law : the negative relationship between GDP and unemployment.
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Growth rates of real GDP, consumption -4 -2 0 2 4 6 8 10 1970 1975 1980 1985 1990 1995 2000 2005 Real GDP growth rate Average growth rate Consumption growth rate Percent change from 4 quarters earlier
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Growth rates of real GDP, consumption, investment -30 -20 -10 0 10 20 30 40 1970 1975 1980 1985 1990 1995 2000 2005 Percent change from 4 quarters earlier Investment growth rate Real GDP growth rate Consumption growth rate
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Unemployment 0 2 4 6 8 10 12 1970 1975 1980 1985 1990 1995 2000 2005 Percent of labor force
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Okun’s Law Percentage change in real GDP Change in unemployment rate -4 -2 0 2 4 6 8 10 -3 -2 -1 0 1 2 3 4 1975 1982 1991 2001 1984 1951 1966 2003 1987 3.5 2 = - Y u Y
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slide 7 Index of Leading Economic Indicators Published monthly by the Conference Board. Aims to forecast changes in economic activity 6-9 months into the future. Used in planning by businesses and govt, despite not being a perfect predictor.
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slide 8 Components of the LEI index Average workweek in manufacturing Initial weekly claims for unemployment insurance New orders for consumer goods and materials New orders, nondefense capital goods Vendor performance New building permits issued Index of stock prices M2 Yield spread (10-year minus 3-month) on Treasuries Index of consumer expectations
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Index of Leading Economic Indicators 0 20 40 60 80 100 120 140 160 1970 1975 1980 1985 1990 1995 2000 2005 1996 = 100 Source: Conference Board
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slide 10 Time horizons in macroeconomics Long run:
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This note was uploaded on 03/25/2010 for the course ECON 305 taught by Professor Vasyl(basil)golovetskyy during the Spring '09 term at Simon Fraser.

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econ305_09_Oct21 - basic facts about the business cycle how...

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