Download Lecture # >> Chapter 21

ECO 1
ECONOMIC GROWTH AND BUSINESS CYCLES
Erkmen Giray ASLIM (erkmengirayaslim.com)
e-mail: [email protected]
11/13/2015
Department of Economics
Lehigh University
BACKGROUND INFORMATION
• How can we define business cycles?
• Economic expansion and recession.
MORE ON BUSINESS CYCLES
DISCUSSION ON BUSINESS CYCLES
THE EFFECT ON UNEMPLOYMENT RATE
LONG-RUN ECONOMIC GROWTH
• The process by which rising productivity increases the average standard of
living.
POTENTIAL GDP
• The level of real GDP attained when all firms are producing at capacity.
• Operating at normal hours and using a normal workforce.
RULE OF 70
70
Number of years to double 
Growth rate
• If real GDP per capita growth rate is 5 percent per year, then it will take
70/5 = 14 years for real GDP per capita to double .
• Proof: (Hint: Use ln2 = 0.69) G(t) = G(0) x ert
DETERMINANTS OF LONG-RUN GROWTH
• Labor productivity.
• Increase in capital.
• Technological change.
Y = F(A, K, L)
DISCUSSION ON ECONOMIC GROWTH