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Today’s Topic: The Misery Index What is the business cycle? • A measure of recurring ups and downs in the level of economic activity – – – – Recovery Peak Decline Trough • How is the business cycle measured? – Real GDP GDP with inflation factored out What is the “Misery Index”? • It is the sum of the rate of inflation and the unemployment rate • Increasing rates indicate a worsening economic situation • Decreasing rates indicate an improving economic situation • Also known as the “Discomfort Index” Why do politicians pay attention to such things as the misery index? • Incumbents USUALLY win if… – the misery index decreases the year preceding the election OR – the growth rate of real income per capita is greater than 3% • Incumbents USUALLY lose if… – the misery index has increased during the year preceding the election OR – The growth rate of real income per capita is less than 3%