Lecture Principles of economics - Chapter 21: Short-term economic fluctuations. This chapter focuses on the basic characteristics of economic fluctuations. It also introduces important concepts such as potential output, the output gap, the natural rate of unemployment, and Okun's law. | Short-Term Economic Fluctuations Chapter 21 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Identify the four phases of the business cycle and explain the primary characteristics of recessions and expansions Use potential output and the output gap to analyze an economy's position in the business cycle Define the natural rate of unemployment and show how it is related to cyclical unemployment Apply Okun's law to analyze the relationship between the output gap and cyclical unemployment Discuss the differences between how the economy operates in the short run and the long run Headlines from The New York Times “Home Sales and Prices Continue to Plummet” “As Jobs Vanish, Motel Rooms Become Home” “Global Stock Markets Plummet” “Energy Prices Surge, and Stocks Fall Again” “Steep Slide in Economy as Unsold Goods Pile Up” “Fed Plans to Inject Another $1 Trillion to Aid Economy” “World Bank Says Global Economy Will Shrink in ‘09” . | Short-Term Economic Fluctuations Chapter 21 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Identify the four phases of the business cycle and explain the primary characteristics of recessions and expansions Use potential output and the output gap to analyze an economy's position in the business cycle Define the natural rate of unemployment and show how it is related to cyclical unemployment Apply Okun's law to analyze the relationship between the output gap and cyclical unemployment Discuss the differences between how the economy operates in the short run and the long run Headlines from The New York Times “Home Sales and Prices Continue to Plummet” “As Jobs Vanish, Motel Rooms Become Home” “Global Stock Markets Plummet” “Energy Prices Surge, and Stocks Fall Again” “Steep Slide in Economy as Unsold Goods Pile Up” “Fed Plans to Inject Another $1 Trillion to Aid Economy” “World Bank Says Global Economy Will Shrink in ‘09” . economy has passed through its worst recession in 25 years Recessions and Expansions Business Cycles are short-term fluctuations in GDP and other variables A recession (or contraction) is a period in which the economy is growing at a rate significantly below normal A period during which real GDP falls for two or more consecutive quarters A period during which real GDP growth is well below normal, even if not negative A variety of economic data are examined A depression is a particularly severe recession Recessions and Expansions A peak is the beginning of a recession High point of the business cycle A trough is the end of a recession Low point of the business cycle An expansion is a period in which the economy is growing at a rate significantly above normal A boom is a strong and long lasting expansion Fluctuations in US Real GDP, 1920-2010 Peak Trough Months U. Rate (high) Change RGDP Next Expansion 8/29 3/33 43 – 50 months 5/37 5/38 12 – 80 2/45 10/45 8 – .
