The Business Cycle

Economic growth Measured in 2 ways 1. increase in real GDP over a specific time period OR 2. increase in real GDP per capita over a specific time period

Growth as a goal Economic growth is a basic goal, especially if you have a growing population Growth lessens the burden of scarcity

The math Rule of 70 Approximate no. 70 of years required = _____________ to double real GDP annual percentage rate of growth

Calculate China’s Potential Growth In the last quarter of 2011, the growth of China’s GDP was 9 % How long will it take China to double it’s current GDP? In the last quarter of 2011, the growth of our GDP was 2.3%. How long would it take to double our GDP at that rate?

What is the business cycle? Systematic ups and downs of real GDP, marked by periods of recession and expansion

Two main phases : RECESSION EXPANSION

Recession A recession is defined as 2 or more consecutive quarters with negative GDP growth As of March 2009, we have been in a recession for about 1 year

What does the business cycle look like?

Business cycle in extreme Great Depression : between 1929 and 1933, GDP fell by 50% - unemployment increased 800%, from 1.6 million to 12.8 million -avg. wage dropped from.55/hr to.05/hr

Since WW2 Short recessions/contractions Long recoveries/expansions

Predicting Business Cycles Use ECONOMETRIC MODELS C+I+G+(X-M) Figures updated each quarter, then again within each quarter Leading indicators monthly statistical series usually turns down before a recession

Possible Causes Innovation Productivity Level of spending

Impact Production of capital goods/durable goods hardest hit Service industries and nondurable goods not impacted as much