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Section12 - UNIVERSITY OF CALIFORNIA BERKELEY Department of...

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UNIVERSITY OF CALIFORNIA, BERKELEY Dorian Carloni Department of Economics ECON 100B, Fall 2011 SECTION 12: Business Cycles 12.1. Business Cycles Basics ° Business cycles are divided into 4 parts: 1. the peak : the maximum level that aggregate economic activity reaches before it begins to contract. 2. the contraction or recession : the period of time when aggregate economic activity is shrinking 3. the trough : the lowest level that aggregate economic activity reaches before it begins a sustained expansion 4. the recovery and expansion : the period of time when aggregate economic activity is growing ° The business cycle is the sequence from one peak to the next peak or from one trough to the next trough ° Macro variables exhibit co-movement with aggregate economic activity that can be classi°ed by the: 1. Direction : Procyclical, Countercyclical, or Acyclical. 2. Timing: Leading, Coincident, Lagging, or Not designated 3. Volatility: Higher, Similar, Lower, or Not designated 12.2. Macro Variable and the Business Cycle ° Direction: the unemployment rate is a countercyclical variable 1
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