Presentation on theme: "What is a business cycle? How do we measure employment, unemployment, and how it changes over the business cycle The Meaning of inflation/deflation Why."— Presentation transcript:
What is a business cycle? How do we measure employment, unemployment, and how it changes over the business cycle The Meaning of inflation/deflation Why is price stability preferred? How does economic growth determine a country’s standard of living?
A peak is when business activity reaches a temporary maximum with full employment and near capacity output. The unemployment rate is at it’s lowest level. A recession (Contraction) is a decline in these rates for a minimum of 6 months. Trough (Depression) is the bottom of the business cycle. Unemployment is at it’s highest. GDP is low.
Recovery (Expansion) is when output and employment are expanding toward full- employment levels. Unemployment begins to fall. We use a variety of measures to know where we are in the business cycle.
Where in the business cycle does a recession start? Where would we see employment levels the highest? Unemployment levels the highest? Where would we see inflation occurring? Where is GDP the highest? The lowest?
A rise in the overall price level. Easy definition: Too much money chasing too few goods.
It reduces our ability to purchase goods and services. Rapid inflation (Hyperinflation) causes wages to become useless. See Germany in late 20’s.
A fall in the overall price level. Sounds good but it hurts the economy as well. Consumers wait for prices to fall. They demand fewer goods. Producers sell fewer products and have to lay off workers. Wages fall as a result. The only time that deflation is good is when it’s caused by increasing production or a reduction in F.O.P. costs.
When studying models we need to assume certain things. A model is a representation and does not contain every All other things being equal It holds everything at a constant while studying the effects of one variable while testing it in the real world.