ECO 1 ECONOMIC GROWTH AND BUSINESS CYCLES Erkmen Giray ASLIM (erkmengirayaslim.com) e-mail: era314@Lehigh.edu 11/13/2015 Department of Economics Lehigh University

BACKGROUND INFORMATION How can we define business cycles? Economic expansion and recession.

MORE ON BUSINESS CYCLES

DISCUSSION ON BUSINESS CYCLES

THE EFFECT ON UNEMPLOYMENT RATE

LONG-RUN ECONOMIC GROWTH The process by which rising productivity increases the average standard of living.

POTENTIAL GDP The level of real GDP attained when all firms are producing at capacity. Operating at normal hours and using a normal workforce.

RULE OF 70 If real GDP per capita growth rate is 5 percent per year, then it will take 70/5 = 14 years for real GDP per capita to double . Proof: (Hint: Use ln2 = 0.69) G(t) = G(0) x ert

DETERMINANTS OF LONG-RUN GROWTH Labor productivity. Increase in capital. Technological change. Y = F(A, K, L)

DISCUSSION ON ECONOMIC GROWTH