321LecNote03Ch9

321LecNote03Ch9 - Instructor : Kim, H.H. Intermediate Macro...

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Unformatted text preview: Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 1 Chapter 9. Introduction to Economic Fluctuation In this chapter, you will learn: • facts about the business cycle • 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.” Business Cycle Chronology 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 ___________________ and investment more volatile than GDP. • Unemployment ________ during recessions and ___________ during expansions. • ____________________ : the negative relationship between GDP and unemployment. Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 2 Growth rates of real GDP, consumption Growth rates of real GDP, consumption, investment Unemployment Percent change from 4 quarters earlier Average growth rate Real GDP growth rate Consumption growth rate Percent change from 4 quarters earlier Investment growth rate Real GDP growth rate Consumption growth rate Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 3 Okun’s Law • Percentage Change in Real GDP = __________________________________________________ • This relationship states that if the unemployment rate is unchanged, then real GDP will ___________________________________ • And, if unemployment were to increase (decrease) by one percentage point, then GDP growth would ______________________________________ NOW YOU TRY • Suppose that the unemployment rate starts at 5 percent and decreases by 2 percentage. How much does real GDP grow? ANSWER Percentage change in real GDP Change in unemployment rate 1975 1982 1991 2001 1984 1951 1966 2003 1987 2008 1971 Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 4 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. 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 • ________________ • M2 • ________________ (10-year minus 3-month) on Treasuries • Index of consumer expectations Index of Leading Economic Indicators Time horizons in macroeconomics Source: Conference Board 2004 = 100 Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 5 • Long run Prices are____________, respond to changes in supply or demand....
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This note was uploaded on 02/07/2011 for the course ECON 321 taught by Professor Sani during the Fall '08 term at Rutgers.

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321LecNote03Ch9 - Instructor : Kim, H.H. Intermediate Macro...

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