economic_fluctuations

economic_fluctuations - Economic Fluctuations Slides by...

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ECONOMICS: Principles and Applications 3e © 2005 Thomson Business and Professional Publishing Slides by: Economic Fluctuations
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2 Economic Fluctuations Neither output nor employment grows as smoothly and steadily as classical model predicts As far back as we have data, United States and similar countries have experienced economic fluctuations During recessions, output declines—occasionally sharply During expansions output rises quickly—usually faster than potential output is rising In later stages of an expansion, output often exceeds potential output Called a boom Why do economic fluctuations Occur in the first place? Sometimes last so long? Not last forever?
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3 Figure 1: Potential and Actual Real GDP and Employment, 1960-2001
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4 Figure 2: U.S. Unemployment Rate, 1960-2003
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5 Shifts in Labor Demand Can classical model explain why GDP and employment typically fall below potential during a recession and often rise above it in an expansion? One idea is that a recession might be caused by a leftward shift of labor demand curve Is this a reasonable explanation for recessions? Most economists feel that the answer is no If we want to explain a leftward shift in the labor demand curve using the classical model Must look for some explanation other than a sudden change in spending
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6 Shifts in Labor Demand Another possibility is that labor demand curve shifts leftward Because workers have become less productive and therefore less valuable to firms A leftward shift of labor demand curve is an unlikely explanation for
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economic_fluctuations - Economic Fluctuations Slides by...

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