Book 1_Econ_Understand business cycles Flashcards
- Expansion
Real GDP is increasing (or GDP growth relative to trend is increasing).
- Peak
Real GDP stops increasing/begins decreasing (GDP growth relative to trend peaks)
- Contraction
Real GDP is decreasing (or GDP growth relative to trend is decreasing).
- Trough
Real GDP stops decreasing/begins increasing (GDP growth relative to trend reaches a low).
- Expansions feature
increasing output, employment, consumption, investment, and inflation.
- Contractions features
Decreasing output, employment, consumption, investment, and inflation.
- Business cycles features
- Business cycles are recurring, but they do not occur at regular intervals, can differ in strength or severity, and do not persist for specific lengths of time.
- Credit cycles definition
- are cyclical fluctuations in interest rates and credit availability.
- Credit cycles may amplify business cycles and cause bubbles in the markets for some assets.
- Inventory to sales ratios
o increase late in expansions when sales slow, and decrease near the end of contractions when sales begin to accelerate
- Staff:
o Because hiring and laying off employees have high costs, firms prefer to adjust their use of current employees. As a result, firms are slow to lay off employees early in contractions and slow to add employees early in expansions.
- physical capital
o more intensively during expansions, investing in new capacity only if they believe the expansion is likely to continue.
o less intensively during contractions, but they are more likely to reduce capacity by deferring maintenance and not replacing equipment than by selling their physical capital.
- Consumer spending
o Durable goods spending is highly sensitive to business cycles,
o spending on services is somewhat sensitive
o spending on nondurable goods is relatively less sensitive to business cycles.
- The level of activity in the housing sector
o affected by mortgage rates, demographic changes, the ratio of income to housing prices, and investment or speculative demand for homes resulting from recent price trends.
- Domestic imports
o tend to rise with increases in GDP growth and domestic currency appreciation
- domestic export volumes.
o increases in foreign incomes and domestic currency depreciation tend to increase
Economic Indicators
- Leading indicators
- Coincident indicators
- Lagging indicators
Leading indicators
have turning points that tend to precede those of the business cycle.
Coincident indicators
have turning points that tend to coincide with those of the business cycle.
Lagging indicators
have turning points that tend to occur after those of the business cycle.
