Week 20 - Short-term fluctuations: Intro Flashcards
What are business cycles?
Business cycles refer to short-term fluctuations in GDP and other economic variables, which involve periods of expansion and recession.
What is a recession?
A recession is a period in which the economy is growing at a rate significantly below normal.
It can be defined as:
A period when real GDP falls for two or more consecutive quarters.
A period when real GDP growth is well below normal, even if not negative.
A variety of economic data are examined to assess recession.
What is the difference between a recession and a depression?
A depression is a particularly severe recession with prolonged economic downturns and deeper impacts on output and employment.
What is a peak in the business cycle?
A peak is the high point of the business cycle, marking the beginning of a recession. It represents the point where economic growth stops accelerating and begins to slow down.
What is a trough in the business cycle?
A trough is the low point of the business cycle, marking the end of a recession. It represents the point where the economy starts recovering and growth begins to pick up.
What is an expansion in the business cycle?
An expansion is a period in which the economy is growing at a rate significantly above normal, characterised by increasing production, employment, and consumer spending.
What is a boom in the business cycle?
A boom is a strong and long-lasting expansion where the economy experiences sustained high growth and economic activity over a prolonged period.
When did the National Bureau of Economic Research (NBER) declare the 2020 recession
The 2020 recession was declared in February 2020 by the NBER, marking the end of the previous recession that had ended in June 2009, after a 128-month expansion.
What are three important monthly indicators used to date recessions?
The three important monthly indicators used to date recessions are:
Real personal consumption expenditures
Non-farm employment
Real after-tax household income
What are coincident indicators?
Coincident indicators are economic indicators that move in tandem with the overall economy, helping to reflect the current state of economic activity.
How long have economists studied business cycles?
Economists have studied business cycles for at least a century, recognising the irregularity and unpredictability of recessions and expansions in terms of length and severity.
How do recessions and expansions affect the economy?
Recessions and expansions affect the entire economy and can have a global impact.
Can recessions affect global economies?
Yes, recessions can have a global impact. Some examples include:
The Great Depression of the 1930s
U.S. recessions in 1973 – 1975 and 1981 – 1982
The Great Recession in 2007 – 2009
The Covid-19 Crisis.
What happens to cyclical unemployment during recessions?
Cyclical unemployment rises sharply during recessions as demand for goods and services decreases, leading to job losses.
How does unemployment behave during an economic recovery?
Decreases in unemployment lag the recovery, meaning it takes time for the job market to improve even after the economy starts growing again.
How do real wages, promotions, and bonuses change during a recession?
Real wages grow more slowly for those employed.
Promotions and bonuses are often deferred or postponed.
New labor market entrants have difficulty finding work.
Which types of goods are more volatile during business cycles?
The production of durable goods (such as cars, houses, and capital equipment) is more volatile than services and non-durable goods (such as food and clothing).
What generally happens to inflation during the course of a business cycle?
Inflation generally decreases during a business cycle, especially during recessions when demand for goods and services falls.
Does inflation always decrease during recessions?
No, inflation can decrease at other times as well, even outside of a business cycle or recession, depending on various factors like policy changes or external economic conditions.
What is potential output (Y)**?
Potential output (Y) is the maximum sustainable amount of output that an economy can produce, also known as full-employment output. It’s the level of output achievable when all resources are fully utilised.
Does potential output grow over time?
Yes, potential output grows over time due to factors like capital accumulation, technological innovation, and improvements in labour productivity.
Does actual output always equal potential output?
No, actual output does not always equal potential output. Variations occur due to factors like economic fluctuations, technical innovations, and other conditions that affect actual economic performance.
What factors influence the growth of potential output?
The growth of potential output is influenced by capital formation, technical innovation, and factors like weather conditions and labor force changes.
What is the output gap?
The output gap is the difference between an economy’s actual output (Y) and its potential output (Y*), expressed relative to potential output, at a point in time. It is calculated as:
Output gap (%) = Y - Y/ Y x100