Economic Fluctuations - Introduction student

Economic Fluctuations - Introduction student - Economic...

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Click to edit Master subtitle style Economic Fluctuations - Introduction
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Topics 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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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 1970 1975 1980 1985 1990 1995 2000 2005 2010 0 2 4 6 8 10 12 Percent change from 4 quarters earlier Average growth rate Real GDP growth rate Consumption growth rate
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Growth rates of real GDP, consumption, investment 1970 1975 1980 1985 1990 1995 2000 2005 2010 -30 -20 -10 0 10 20 30 40 Percent change from 4 quarters earlier Investment growth rate Real GDP growth rate Consumption growth rate
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Unemployment 1970 1975 1980 1985 1990 1995 2000 2005 2010 0 2 4 6 8 10 12 Percent of labor force
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Okun’s Law Percentage change in real GDP Change in unemployment rate -20 -18 -16 -14 -12 -10 -8 -12 -10 -8 -6 -4 -2 0 = - 3 2 Y u Y 197 5 198 2 19 91 200 1 198 4 195 1 196 6 2003 198 7 200 8 197 1
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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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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 Source: Conference Board 2004 = 100 1970 1975 1980 1985 1990 1995 2000 2005 2010 30 40 50 60 70 80 90 100 110 120
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macroeconomics Long run Prices are flexible, respond to changes in supply or demand.
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