 The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy.

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 The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy

 11 recessions since WWII with an average length of 10 months; average expansion is 5 years, 7 months  Full business cycles range from 18 months to 10 years, 8 months

 Two measures are used to determine recessions: ◦ Unemployment ◦ GDP  Macroeconomic analysis is aimed at making policy decisions that shorten recessions and lengthen expansions

 Employed + Unemployed = Labor force  Unemployment rate is the percentage of labor force unemployed  Unemployment goes up during a recession, down during an expansion (over the long term) – but there is ALWAYS unemployment  Relationship between aggregate output (GDP) and unemployment is inverse

 Because prices have kept pace with (and in some areas exceeded) wage gains in last 40 years, there has been little impact on standard of living  Inflation is an increase in overall price level; deflation is its opposite  Inflation causes increased spending; deflation causes increased savings – both have negative impacts, so price stability is a goal of macroeconomics

 Long-run economic growth is accomplished gradually; GDP grows a few percent per year at most.  Rule of 70 is used to determine how many years it takes for GDP to double at its current rate of growth  Rule of 70 can only be applied to positive growth rates

Chart of Inflation YearJanFebMarAprMayJunJulAugSepOctNovDecAve