Welcome U All To This Session On: Phases of The Business Cycle
Welcome U All To This Session On: Phases of The Business Cycle
Welcome U All To This Session On: Phases of The Business Cycle
Business Cycle
Definition: alternating increases and decreases in the level of business activity of varying amplitude and length How do we measure increases and decreases in business activity?
Percent change in real GDP!
Business Cycle
Why do we say varying amplitude and length?
Some downturns are mild and some are severe Some are short (a few months) and some are long (over a year)
U.S. real gross domestic product per person from 1900 to 2004
Recession
Expansion
Trough
Jan.- Apr.- July- Oct.- Jan.- Apr.- July- Oct.- Jan.- Apr.Mar June Sept. Dec. Mar June Sept. Dec. Mar June
McGraw-Hill/Irwin
Trough
Trough
2005
2010 Year
2015
10-4
Recession
What is a recession?
Generally, 2 or more quarters of declining real GDP Implication: its not officially a called a recession until the economy has already been declining for 6 months!
Who decides when were in a recession? National Bureau of Economic Research traditionally declares recessions Private research organization, not a federal agency Recession dates from peak of business
*The February 1945October 1945 recession began before the war ended in August 1945.
Endogenous
Starts from within the model Endo- inside, source Genous- born
Exogenous
From outside of the model Exo- outside Genous- born, source
Exogenous theories
Sunspot theory War theory
10-5
10-6
10-7
Potential GDP
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Since potential GDP has exceeded actual GDP for most years since World War II, we have had a GDP gap. However in some periods, most recently from 1996 through 2000, actual GDP has been greater than potential GDP
The GDP gap is the amount of production by which potential GDP exceeds actual GDP 10-9