8uSlnLSS C?

CLLS
O8uslness cycles are Lhe shorLrun flucLuaLlons
ln aggregaLe economlc acLlvlLy around lLs long
run growLh paLh
OComponenLs of a 8uslness Cycle
eak
O ConLracLlon or 8ecesslon
O 1rough and
O 8ecovery and Lxpanslon
SLages of Lhe buslness cycle
O eak
O 1he maxlmum level LhaL aggregaLe economlc
acLlvlLy reaches
O Contract|ons kecess|ons or nard Land|ng
O or more consecuLlve quarLers of decllnlng real Cu
O perlod of slgnlflcanL decllne ln LoLal ouLpuL lncome
employmenL and Lrade
O usually lasLlng from 6 monLhs Lo a year and
O marked by wldespread conLracLlons ln many secLors of
Lhe economy
SLages conL'd
O AcLual growLh raLe ls less Lhan naLural growLh raLe resulLlng ln
a rlslng unemploymenL raLe
O epress|on
O A recesslon LhaL ls ma[or ln boLh scale and duraLlon
O 1he mlnlmum level LhaL aggregaLe economlc
acLlvlLy reaches
kecovery
O A perlod of slgnlflcanL lncrease ln LoLal ouLpuL
O lncome employmenL and Lrade
O usually lasLlng 6 monLhs or more and
O marked by wldespread expanslon ln many secLors of economy
eaLures of a buslness cycle
O Maln feaLures of a buslness cycle
O ervaslve ln naLure
O 8ecurrenL buL noL perlodlc
O erslsLenL
O Lach cycle dlffers ln lengLh and severlLy
O Lxpanslons are longer Lhan recesslons
O 8uslness cycles are flucLuaLlons ln oqqreqote economic
octivity not f/uctuotions in o specific economlc varlable
O 8uslness cycles are pers|stent
O uecllnes ln aggregaLe economlc acLlvlLy are followed by
furLher decllnes growLh ln aggregaLe economlc acLlvlLy ls
followed by more growLh
O 8uslness cycle are recurrent
1he paLLern of controctiontrouqhexponsion peok
occurs over ond over oqoin
O 8uslness cycles are not per|od|c
O 8uslness cycles do noL occur aL regular predlcLable
lnLervals
Macro economlc varlables and
buslness cycles
O 1he behavlor of economlc varlables
irection
O JhaL ls Lhe direction of o voriob/es movement
re/otive Lo aggregaLe economlc acLlvlLy?
O 9rocyc/ico/ moves in the some direction
O ountercyc/ico/ moves in the opposite direction
O cyc/ico/ moves with no c/eor pottern
@iminq
O % JhaL ls Lhe timinq of o voriob/es movements re/otive
O Lo aggregaLe economlc acLlvlLy?
O eodinq moves in odvonce
O oincident moves ot the some time
O oqqinq moves ofterwords
O eodinq indicotors hove been used to predict peaks and
Lroughs of Lhe buslness cycle
Cenerally several leadlng varlables are comblned lnLo
an lndex of leadlng economlc lndlcaLors
O A decllne ln Lhe lndex for 3 Lo 6 monLhs warns of a
recesslon
O @e cyc||ca| beav|or of key macro
var|ab|es
O eodinq residentio/ investment inventory
investment
overoqe /obor productivity money qrowth stock
prices
O oincident industrio/ production consumption
business fixed investment emp/oyment
O oqqinq inf/otion nomino/ interest rotes
O @iminq not desiqnoted qovernment purchoses reo/
woqes
var|ab|e |rect|on t|m|ng
product|on
lndusLrlal producLlon rocycllcal colncldenL
expend|ture
ConsumpLlon rocycllcal colncldenL
8uslness lnvesLmenL rocycllcal colncldenL
8esldenLlal lnvesLmenL rocycllcal leadlng
lnvenLory lnvesLmenL rocycllcal leadlng
CovernmenL purchases rocycllcal
Labour market d|rect|on t|m|ng
LmploymenL rocycllcal ColncldenL
unemploymenL CounLercycllcal unclasslfled
Average labor producLlvlLy rocycllcal leadlng
8eal wages rocycllcal (mlldly)
Money market
Money supply rocycllcal leadlng
lnflaLlon rocycllcal lagglng
I|nanc|a| var|ab|es
SLock rocycllcal leadlng
lnLeresL raLes rocycllcal lagglng
8eal lnLeresL acycllcal
MulLlpller AcceleraLor
O 1he shape of Lhe buslness cycle depends on Lhe
lnLeracLlon beLween Lhe acceleraLor and Lhe mulLlpller
O lf Lhere ls an lnlLlal ln[ecLlon mulLlpller acLlon wlll sLarL
whlch wlll cause ouLpuL Lo lncrease and hence Lhrough
Lhe acceleraLor Lhe lnvesLmenL wlll lncrease and seLoff
anoLher chaln of mulLlpller reacLlon
O lf however Lhe full employmenL level ls reached and
ouLpuL cannoL lncrease any furLher Lhe lnvesLmenL does
noL Lake place and Lhe celllng ls reached