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Title: Short Term Economic Fluctuations
Description: These notes explain what happens during short term economic fluctuations and what measures financial institutions can take to correct them. These are college level notes but they can also be used for high school classes and AP courses.
Description: These notes explain what happens during short term economic fluctuations and what measures financial institutions can take to correct them. These are college level notes but they can also be used for high school classes and AP courses.
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Short Term Economic Fluctuations
Saturday, April 2, 2016
1:08 PM
• Business Cycles: short-term fluctuations in GDP and other variables
• Recession (or contraction): a period in which the economy is growing at a rate
significantly below normal
• Depression: a particularly severe or protracted recession
• Peak: the beginning of a recession
○ The high point of economic activity prior to a downturn
• Trough: the end of a recession
○ The low point of economic activity prior to a recovery
• Expansion: a period in which the economy is growing at a rate slightly above
normal
○ Boom: a particularly strong and protracted expansion
• Business Cycle Dating Committee is group within the National Bureau of
Economic Research that determines recession dates
○ Looks at coincident indicators industrial production which measures the
output of factories and mines
○ Total sales in manufacturing and trade
○ Nonfarm employment
○ Real after-tax income received by households
§ Excludes transfer payments like Social Security
• Expansions and recessions are felt throughout the economy and may have a
global impact
• Unemployment rate rises during recessions and recovers during expansions
○ Cyclical Unemployment related to recessions
• Labor conditions generally worsen during recessions
• Industries that produce durable goods are more affected than others by
recessions and booms
• Recessions are followed by a decline in inflation and preceded by an increase in
inflations
Output Gaps and Cyclical Unemployment
• Potential Output: the maximum sustainable amount of output (real GDP) than
an economy can produce
○ Not maximum output because that level may not be held sustainably
○ Grows over time reflecting increases in amounts of capital and labor and
productivity
• When potential output slows, government should promote saving, investment,
• Potential Output: the maximum sustainable amount of output (real GDP) than
an economy can produce
○ Not maximum output because that level may not be held sustainably
○ Grows over time reflecting increases in amounts of capital and labor and
productivity
• When potential output slows, government should promote saving, investment,
technological innovation, human capital formation, etc
Title: Short Term Economic Fluctuations
Description: These notes explain what happens during short term economic fluctuations and what measures financial institutions can take to correct them. These are college level notes but they can also be used for high school classes and AP courses.
Description: These notes explain what happens during short term economic fluctuations and what measures financial institutions can take to correct them. These are college level notes but they can also be used for high school classes and AP courses.