chapter 3: Macroeconomic Fluctuations Flashcards
Contraction/Recession
A contraction or a recession is a period during which Y < 0
(Stylized Facts) Ineluctability
Business cycles exist always and everywhere.
(Stylized Facts) Irregularity
Business cycles are highly irregular, and therefore imperfectly predictable, as to their timing as well as to their amplitude.
(Stylized Facts)
Positive Correlations
Several real macroeconomic variables are strongly and positively correlated to real GDP (possibly with a lag). Such variables are
called “procyclical”.
(Stylized Facts)
Negative Correlations
Several real macroeconomic variables are strongly and negatively correlated to real GDP (possibly with a lag). Such variables are
called “countercyclical”.
AD
Aggregate Demand Curve
AS
Aggregate Supply Curve has a relationship between:
- total quantity of final G&S supplied by domestic suppliers
- general level of prices of final domestic production (P)
We are interested in fluctuations of
1 real economic activity (real GDP and correlated variables such as income, employment, consumption. . .)
2 prices
We distinguish
fluctuations
over long periods ➙ Growth trend
short-run fluctuations ➙ Business cycle
The growth trend
is the underlying long-term movement of
economic activity.
( the average annual growth rate over a long period)
The business cycle
describes the deviations of real GDP from its
growth trend
with Succession of:
- Peak: Point where the considered variable begins to decline
- Trough: Point where the considered variable begins to rise
Depression
A depression is a severe recession (at least 10% of cumulated contraction of Y)
Peak
Point where the considered variable begins to decline
Trough
Point where the considered variable begins to rise
Expansion/Boom
Depending on the context, an expansion describes the period during which Y> 0 or Y > Y trend.
The period during which Y > Y trend is also called a boom.
