Long-Run Economic Growth and Business Cycles: Before the Great Panic Potential Real GDP Potential GDP Actual GDP Post – World War II Steady growth with two serious slumps: (oil shock and stagflation) (Volcker Disinflation) – 2007: The Great Moderation

The Business Cycle Some Basic Business Cycle Definitions

The Great Panic vs. Recession of 2001

Who Decides if the Economy Is in a Recession? Making the Connection PEAKTROUGH LENGTH OF RECESSION July 1953May months August 1957April months April 1960February months December 1969November months November 1973March months January 1980July months July 1981November months July 1990March months March 2001November months December 2007Ongoing21 months+

The Effect of the 2001 Recession on the Inflation Rate The Effect of the Business Cycle on the Inflation Rate What Happens during a Business Cycle?

Inflation and the Business Cycle: The Great Panic in Perspective

The Effect of the Business Cycle on the Inflation Rate: Not Counting the Great Panic What Happens during a Business Cycle?

The Effect of the Business Cycle on the Unemployment Rate What Happens during a Business Cycle?

Unemployment Rate: Great Panic vs. Recession of 2001

Duration of Unemployment:Great Panic vs. Recession of 2001

The Effect of the Business Cycle on the Unemployment Rate: Not Counting the Great Panic What Happens during a Business Cycle?

FIGURE 9.12 Fluctuations in Real GDP, 1900–2006 Recessions Have Been Milder and the Economy Has Been More Stable Since 1950: The Great Panic Doesn’t Compare with the Great Depression of the 1930s and the WWII Boom and Demobilization Slump What Happens during a Business Cycle?

Recessions Have Been Milder and the Economy Has Been More Stable Since 1950 The Business Cycle Has Become Milder PERIOD AVERAGE LENGTH OF EXPANSIONS AVERAGE LENGTH OF RECESSIONS months months19 months months9 months What Happens during a Business Cycle?

The increasing importance of services and the declining importance of goods. unemployment insurance and other government transfer programs that provide funds to the unemployed. Active federal government policies to stabilize the economy. The Business Cycle Why Is the Economy More Stable? BIG Government Automatic stabilizers