1. Introduction to Macroeconomics Chapter 7 Business Cycles

2. Introduction to Macroeconomics Chapter 7. Business Cycles 1. Characteristics of Business Cycles 2. Business Cycle Relationships 3. Forecasting Business Cycles

3. Introduction to Macroeconomics 1. Characteristics of Business Cycles Recurrent, systematic fluctuations in the level of business activity: - real GDP growth rate - inflation - unemployment

4. Introduction to Macroeconomics Real GDP Unemployment Rate (percent) Inflation Rate (percent) PeakTroughPeak ContractionExpansion (Recession) 1. Characteristics of Business Cycles Systematic Fluctuations

5. Introduction to Macroeconomics 1. Characteristics of Business Cycles Real GDP

6. Introduction to Macroeconomics 1. Characteristics of Business Cycles Unemployment

7. Introduction to Macroeconomics 1. Characteristics of Business Cycles Inflation Sources: Bureau of Labor Statistics National Bureau of Economic Reasearch PTPTPTPTPTPT Expansion

8. Introduction to Macroeconomics 1. Characteristics of Business Cycles Components of GDP

9. Introduction to Macroeconomics 2. Business Cycle Relationships Okun’s Law: changes in GDP and unemployment Phillips Curve: unemployment and inflation

10. Introduction to Macroeconomics 2. Business Cycle Relationships Okun’s Law Output fluctuates more than unemployment over the business cycle 1 % decline in growth rate of real GDP leads to 1/2% of workers becoming unemployed

11. Introduction to Macroeconomics 2. Business Cycle Relationships Okun’s Law

12. Introduction to Macroeconomics 2. Business Cycle Relationships Phillips Curve, 1950s and 1960s

13. Introduction to Macroeconomics 2. Business Cycle Relationships Phillips Curve, 1970s

14. Introduction to Macroeconomics 3. Forecasting Business Cycles Direction of Movement Procyclical - with the cycle. Increases during expansions and declines during contractions Countercyclical - goes against the cycle Acyclical - no observable relation to the cycle

15. Introduction to Macroeconomics 3. Forecasting Business Cycles Timing Coincident - matches the cycle. Peaks and troughs occur at roughly the same time. Lagging - peaks and troughs follow a few months later. Leading - peaks and troughs occur before those of the cycle.

16. Introduction to Macroeconomics 3. Forecasting Business Cycles Index of Leading Economic Indicators Sources: The Conference Board: www.tcb-indicators.org/ NBER: www.nber.org PTPTPTPTPTPT