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Business Cycles Ebb and Flow Of Economies
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Business Cycles Periods of macroeconomic expansion followed by period of macroeconomic contraction. Major changes in Real GDP. 4 phases 1.Expansion- growth and rise in Real GDP. Economic Growth-steady and long-term rise in Real GDP. Jobs+++++, production+++ spending 2.Peak-When real GDP stops rising 3.Contraction-Falling Real GDP. Production falls and unemployment rises.
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Business Cycles 4. Trough-economy has bottomed out and Real GDP has stopped falling. 3 terms about Contraction of Economy Recession-Real GDP drops for 6-18 consecutive months. (2 qtrs.) Unemployment up (6-10%), output down. Depression- No precise definition- deep, long depression. High unemployment, poor business conditions, despair
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Business Cycles Stagflation- Decline in Real GDP and inflation or rise in price levels. 4 factors that drive business cycles Business investment- expansion vs cut backs Interest rates/credit-interest rates &borrowing Consumer expectations-consumer confidence External Shocks- positive and negative outside effects on society/business and production
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Business Cycle Forecasting Remember- looking at GDP is like looking in rear view mirror. Predicting is difficult Economist look at leading indicators Stock market Interest rates Manufacturer’s orders for capital goods. Up to indicators!! Housing starts also.
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