The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time...
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Transcript of The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time...
![Page 2: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/2.jpg)
Economic growth
• Measured in 2 ways
1. increase in real GDP over a specific time period
OR
2. increase in real GDP per capita over a specific time period
![Page 3: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/3.jpg)
Growth as a goal
• Economic growth is a basic goal, especially if you have a growing population
• Growth lessens the burden of scarcity
![Page 4: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/4.jpg)
The math
• Rule of 70
Approximate no. 70
of years required = _____________
to double real GDP annual percentage
rate of growth
![Page 5: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/5.jpg)
Calculate China’s Potential Growth
• In the last quarter of 2011, the growth of China’s GDP was 9 %
• How long will it take China to double it’s current GDP?
• In the last quarter of 2011, the growth of our GDP was 2.3%. How long would it take to double our GDP at that rate?
![Page 6: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/6.jpg)
What is the business cycle?
• Systematic ups and downs of real GDP, marked by periods of recession and expansion
![Page 7: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/7.jpg)
Two main phases :
•RECESSION
•EXPANSION
![Page 8: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/8.jpg)
Recession
• A recession is defined as 2 or more consecutive quarters with negative GDP growth
• As of March 2009, we have been in a recession for about 1 year
![Page 9: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/9.jpg)
What does the business cycle look like?
![Page 10: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/10.jpg)
Business cycle in extreme
• Great Depression : 1929-1945
-between 1929 and 1933, GDP fell by 50%
- unemployment increased 800%, from
1.6 million to 12.8 million
-avg. wage dropped from .55/hr to .05/hr
![Page 11: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/11.jpg)
Since WW2
• Short recessions/contractions
• Long recoveries/expansions
![Page 12: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/12.jpg)
Predicting Business Cycles
• Use ECONOMETRIC MODELSC+I+G+(X-M)
Figures updated each quarter, then again within each quarter
• Leading indicators
monthly statistical series usually turns down before a recession
![Page 13: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/13.jpg)
Possible Causes
• Innovation
• Productivity
• Level of spending
![Page 14: The Business Cycle. Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over.](https://reader035.fdocuments.in/reader035/viewer/2022072016/56649eeb5503460f94bfd21c/html5/thumbnails/14.jpg)
Impact
• Production of capital goods/durable goods hardest hit
• Service industries and nondurable goods not impacted as much