Download Macroeconomics - Econproph on Macro

Unit 6: The Business Cycle
Society's Goals for Macro System
Growth
 Stable Prices & Money
 Full Employment


Stability of Business Cycle
A “Recession” is a ‘period of prolonged,
widespread decline in economic activity’formal definition.
U.S. business cycle history before Great
Depression.
http://static.safehaven.com/authors/alexander/110602_b.gif
U.S. business cycle history Great
Depression through 1998.
http://www.socialstudieshelp.com/Images/Business_Levels.jpg
The “Business Cycle” is based on ups and
downs of real GDP growth.
Common to capitalist market
economies
http://www.nber.org/cycles.html
Components of Business Cycles
Two phases
 Expansion


“Recovery”
Contraction

“Recession”
Points:
 Peak
 Trough
The down phase of a cycle is
Contraction or Recession.
The growth phase of a cycle is Expansion.
recovery
There are 2 key points in a cycle: peaks
and troughs.
Policy Goal: Cyclical Stability with
recessions that are mild, short, and
infrequent.
‘Depression’ is a very severe or longlasting contraction, but has no formal,
technical definition.
Depressions often result from a
financial ‘panic’ or financial/banking
system crisis
Slow growth (slower than population)
sometimes called ‘growth recession’
or ‘stagnation’
Why Theory Matters – History and
Evolution of Theories
Inflation vs. unemployment – the
apparent balancing act
Cyclical Policy Tradeoffs:
Inflation vs. Employment
Evolution of Macro Economic Theories
Diagram of evolution of Macro
theories
ideological foundations of
stable/laissez faire – stable
with policy – unstable w/
policy – unstable