Lecture 10 - handout

Lecture 10 - handout - Short-Run Economic Fluctuations...

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Unformatted text preview: Short-Run Economic Fluctuations Keith S. Evans Iowa State University March 24, 2009 Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 1 / 27 Today we will touch on: Facts about the Business Cycle Leading Indicators How the Short-run differs from the Long-run Read Mankiw Ch. 9 Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 2 / 27 Macroeconomic Policy Goals Recall that the Government, and Central Bank have three main policy goals; 1 Economic Growth (GDP) 2 Stable Prices 3 Low Unemployment To achieve these goals the Government (or the Fed) must: do nothing (laissez faire)- according to the Classical Model of the Long-Run , take measure to guide the economy- in the short-run Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 3 / 27 What is the Business Cycle? ut Actual GDP alOutpu Potential GDP re Time Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 4 / 27 What is the Business Cycle? Definition Actual output refers to the observed level of real GDP Potential Output refers to the level of output at full-employment (See notes from Classical Model) The gap between real GDP and potential GDP is called the output gap Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 5 / 27 What is the Business Cycle? There are two types of output gaps; 1 When real GDP exceeds potential GDP, the output gap is called a inflationary gap . 2 When potential GDP exceeds real GDP, the output gap is called a recessionary gap . Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 6 / 27 What is the Business Cycle? ut Actual GDP alOutpu Potential GDP re A B Time Keith S. Evans (Iowa State University) Short-Run Economic Fluctuations March 24, 2009 7 / 27 What happens in during an economic contraction?...
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This note was uploaded on 08/31/2011 for the course ECON 102 taught by Professor Singerman during the Spring '08 term at Iowa State.

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Lecture 10 - handout - Short-Run Economic Fluctuations...

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