Chapter 6 Business Cycles and Short-Run Macroeconomics—Essentials of the Keynesian System PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western.

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Presentation transcript:

Chapter 6 Business Cycles and Short-Run Macroeconomics—Essentials of the Keynesian System PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western. All rights reserved.

Fundamental Issues What are business cycles, and what are their key features? What are the key relationships implied by the circular flow of income and expenditures? What are the components of aggregate desired expenditures in the basic Keynesian model? How is equilibrium real income determined in the basic Keynesian model, and how does this theory explain short-run business cycles? How is the equilibrium trade balance determined? Copyright © 2004 South-Western. All rights reserved.

A Hypothetical Business Cycle Figure 6–1 Copyright © 2004 South-Western. All rights reserved.

Business Cycle Expansions and Recessions in the United States *Cycles are measured from peak to peak. Table 6–1 Sources: National Bureau of Economic Research; Survey of Current Business; authors’ estimates. Copyright © 2004 South-Western. All rights reserved.

Unemployment Rates and Phases of the Business Cycle Unemployment rate (percent of civilian labor force) Source: Economic Report of the President, 2002; National Bureau of Economic Research; Economic Indicators (various issues). Figure 6–2 Copyright © 2004 South-Western. All rights reserved.

Circular Flow of Income and Expenditures Figure 6–3 Copyright © 2004 South-Western. All rights reserved.

The Saving Function Figure 6–4 Copyright © 2004 South-Western. All rights reserved.

The Import Function Figure 6–4b Copyright © 2004 South-Western. All rights reserved.

The Import Function Figure 6–4c Copyright © 2004 South-Western. All rights reserved.

Factors Causing Changes in Desired Investment Figure 6–5 Copyright © 2004 South-Western. All rights reserved.

U.S. Final Sales of Computers and the Real Price of Computers Sources: Michael Pakko, “Accounting for Computers,” Federal Reserve Bank of St. Louis National Economic Trends, May 2001; authors’ estimates. Figure 6–6 Copyright © 2004 South-Western. All rights reserved.

The Government Spending and Net Tax Schedules Figure 6–7 Copyright © 2004 South-Western. All rights reserved.

The Export Schedule Figure 6–8 Copyright © 2004 South-Western. All rights reserved.

Deriving the Aggregate Expenditures Schedule Figure 6–9 Copyright © 2004 South-Western. All rights reserved.

The 45-Degree Line Figure 6–10 Copyright © 2004 South-Western. All rights reserved.

Two Approaches to Determining Equilibrium Real Income Figure 6–11 Copyright © 2004 South-Western. All rights reserved.

The Determination of Equilibrium Real Income Figure 6–12 Copyright © 2004 South-Western. All rights reserved.

The Multiplier Effect on Real Income Caused by a Decline in Real Investment Figure 6–13 Copyright © 2004 South-Western. All rights reserved.

Real Consumption, Government Spending, Exports, and Investment since 1993 Sources: Bureau of Economic Analysis; Economic Indicators, various issues. Figure 6–14a Copyright © 2004 South-Western. All rights reserved.

Investment since 1993 Sources: Bureau of Economic Analysis; Economic Indicators, various issues. Figure 6–14b Copyright © 2004 South-Western. All rights reserved.

Determining the Equilibrium Trade Balance Figure 6–15 Copyright © 2004 South-Western. All rights reserved.

Components of the Index of Leading Economic Indicators Source: Conference Board. Table 6–2 Copyright © 2004 South-Western. All rights reserved.

The Leading Economic Indicators Index since 1970 Sources: Marco Del Negro, “Turn, Turn, Turn: Predicting Turning Points in Economic Activity,” Federal Reserve Bank of Atlanta Economic Review, Second Quarter 2001, pp. 1–12; Conference Board; National Bureau of Economic Research. Figure 6–16 Copyright © 2004 South-Western. All rights reserved.