Unit 6: The Business Cycle

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Unit 6 The Business Cycle
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Society's Goals for Macro System

• Growth
• Stable Prices Money
• Full Employment
• Stability of Business Cycle

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A Recession is a period of prolonged,
widespread decline in economic activity- formal
definition.
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U.S. business cycle history before Great
Depression.
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U.S. business cycle history Great Depression
through 1998.
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evels.jpg
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The Business Cycle is based on ups and downs of
real GDP growth.

• Common to capitalist market economies

• http//www.nber.org/cycles.html

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Components of Business Cycles

• Two phases
• Expansion
• Recovery
• Contraction
• Recession
• Points
• Peak
• Trough

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The down phase of a cycle is Contraction or
Recession.
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The growth phase of a cycle is Expansion.
recovery
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There are 2 key points in a cycle peaks and
troughs.
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Policy Goal Cyclical Stability with recessions
that are mild, short, and infrequent.
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Depression is a very severe or long-lasting
contraction, but has no formal, technical
definition.
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Depressions often result from a financial panic
or financial/banking system crisis
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Slow growth (slower than population) sometimes
called growth recession or stagnation
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Why Theory Matters History and Evolution of
Theories
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Inflation vs. unemployment the apparent
balancing act
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Cyclical Policy Tradeoffs

• Inflation vs. Employment

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Evolution of Macro Economic Theories

• Diagram of evolution of Macro theories
• ideological foundations of stable/laissez faire
  stable with policy unstable w/ policy unstable