321LecNoteCh9

321LecNoteCh9 - Instructor : Kim, H.H. Intermediate Macro...

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Unformatted text preview: Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 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 33.5 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 Spring 2011 Economics 01:220:321 2 Growth rates of real GDP, consumption -4-2 2 4 6 8 10 1970 1975 1980 1985 1990 1995 2000 2005 2010 Percent change from 4 quarter s earlier Average growth rate Real GDP growth rate Consumptio n growth rate Growth rates of real GDP, consumption, investment -30-20-10 10 20 30 40 1970 1975 1980 1985 1990 1995 2000 2005 2010 Percent change from 4 quarter s earlier Investment growth rate Real GDP growth rate Consumptio n growth rate Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 Economics 01:220:321 3 Unemployment 2 4 6 8 10 12 1970 1975 1980 1985 1990 1995 2000 2005 2010 Percent of labor force Okuns 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 ______________________________________ Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 Economics 01:220:321 4 NOW YOU TRY Suppose that the unemployment rate starts at 5 percent and decreases by 2 percentage. How much does real GDP grow? ANSWER 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 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 Spring 2011 Economics 01:220:321 5 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...
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321LecNoteCh9 - Instructor : Kim, H.H. Intermediate Macro...

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