1. Lectures in Macroeconomics- Charles W. Upton What Business Cycles Cost Us Part 1

2. What Business Cycles Cost Us –Part 1 The Basic Problem Business Cycles Occur –People get upset about them.

3. What Business Cycles Cost Us –Part 1 The Basic Problem Business Cycles Occur A lot of time is spend discussing Business Cycles –Economists spend a lot of time discussing how to deal with them. –Politicians take a lot of time taking credit for good times and passing blame for bad times.

4. What Business Cycles Cost Us –Part 1 The Basic Problem Business Cycles Occur A lot of time is spend discussing Business Cycles –Economists spend a lot of time discussing how to deal with them. –Politicians take a lot of time taking credit for good times and passing blame for bad times. But how bad are business cycles?

5. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t )

6. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t )

7. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t ) Business Cycles mean volatility in consumption and uncertainty costs

8. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t ) Business Cycles mean volatility in consumption and uncertainty costs People hate uncertainty

9. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t ) Business Cycles mean volatility in consumption and uncertainty costs People hate uncertainty Business cycles also mean volatility in employment

10. What Business Cycles Cost Us –Part 1 The Lucas View t log(c t ) But how much is eliminating the uncertainty worth to you?

11. What Business Cycles Cost Us –Part 1 A Naïve View t log(c t )

12. What Business Cycles Cost Us –Part 1 The Choice

13. What Business Cycles Cost Us –Part 1 The Choice

14. What Business Cycles Cost Us –Part 1 A Formal Analysis

15. What Business Cycles Cost Us –Part 1 A Formal Analysis

16. What Business Cycles Cost Us –Part 1 A Formal Analysis I use natural logs, not common logs (in Excel the ln function, not the log function

17. What Business Cycles Cost Us –Part 1 The Real Choice

18. What Business Cycles Cost Us –Part 1 The Real Choice Not so obvious

19. What Business Cycles Cost Us –Part 1 The Real Choice

20. What Business Cycles Cost Us –Part 1 The Real Choice Suppose =0.02. Then it would be worth giving up a 2% increase in uncertain consumption to eliminate the uncertainty.

21. What Business Cycles Cost Us –Part 1 The Numbers

22. What Business Cycles Cost Us –Part 1 The Numbers =0.0205

23. What Business Cycles Cost Us –Part 1 The Numbers =0.0205 Eliminating uncertainty would have the same benefit as a 2.05% increase in consumption

24. What Business Cycles Cost Us –Part 1 The Answer  0.015

25. What Business Cycles Cost Us –Part 1 The Answer  0.015 Eliminating business cycles is worth as much as a 1.5% increase in consumption.

26. What Business Cycles Cost Us –Part 1 The Answer  0.015 Eliminating business cycles is worth as much as a 1.5% increase in consumption. Since C runs about $7,000 billion per year, this is equal to about $105 billion per year.

27. What Business Cycles Cost Us –Part 1 End ©2006 Charles W. Upton. All rights reserved