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Unformatted text preview: Chapter 8 Business Cycles Learning Objectives I. Goals of Part 3 A) What causes business cycles? B) How should policymakers respond to cyclical fluctuations? 1. Classical economists see little need for government action 2. Keynesian economists think government intervention can smooth the business cycle C) Coverage of Chapters 8 to 11 1. Business cycle facts and features (Ch. 8) 2. The basic IS – LM model (Ch. 9) 3. The classical model of the business cycle (Ch. 10) 4. The Keynesian model of the business cycle (Ch. 11) II. Goals of Chapter 8 A) Basic features of the business cycle B) Definition and brief history of U.S. business cycles C) Review of business cycle characteristics D) Preview of aggregate demand-aggregate supply model III. Notes to Fourth Edition Users A) Box 8.1 on “Temporary and Permanent Components of Recessions” has been deleted B) A new application, “Dating the Peak of the 2001 Recession” has been added to highlight the practical issues the NBER faces in determining turning points C) New material has been added in Section 8.2 on the causes of reduced volatility in U.S. output since the mid-1980s D) The discussion of leading indicators has been modified to focus on whether they are useful in forecasting recessions in real time E) The detailed discussion of the cyclical movement of the real wage, which last appeared in the 2nd edition of the textbook, is still available in this instructor’s manual following the “Teaching Notes” section; it can be photocopied and distributed to your class if you’d like to present this material Chapter 8 Business Cycles 137 Teaching Notes I. What Is a Business Cycle? (Sec. 8.1) A) U.S. research on cycles began in 1920 at the National Bureau of Economic Research (NBER) 1. NBER maintains the business cycle chronology—a detailed history of business cycles 2. NBER sponsors business cycle studies Data Application A major compendium of studies on the business cycle was produced by the NBER in 1986, The American Business Cycle: Continuity and Change , edited by Robert J. Gordon, Chicago: University of Chicago Press. It contains general discussions of the then-current state of knowledge of the business cycle, research on components of expenditure and how they change over the cycle, discussions of the role of fiscal and monetary policies, and research on how the cycle has changed over time. Another NBER volume that is a great resource on business cycle information is Victor Zarnowitz’s book, Business Cycles: Theory, History, Indicators, and Forecasting , Chicago: University of Chicago Press, 1992. Zarnowitz discusses theories and evidence on the business cycle, including the NBER’s research role, research on the cyclical characteristics of cycles, an evaluation of coincident and leading indicators, and a broad discussion of many aspects of business cycle forecasting....
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- Spring '09