Wk 6 - The Business Cycle Flashcards
5 main points about business cycles
- They are fluctuations of aggregate economic activity, not a specific variable.
- Involves expansions and contractions.
- Economic variables show comovement - they have regular and predictable patterns of behaviour throughout the business cycle.
- It is recurrent, but not periodic.
- It is persistent.
Comovement
Tendency for a lot of economic variables to predictably move together across the business cycle.
Recurrent
Contraction-trough-expansion-peak
Persistent
Declines are follow by further declines; growth is followed by more growth.
Procyclical
Variable moves in the same direction relative to aggregate economic activity.
Countercyclical
Variable moves in the opposite direction relative to aggregate economic activity.
Acyclical
Variable moves with no clear pattern relative to aggregate economic activity.
Leading
Variable movement timing is in advance relative to aggregate economic activity.
Coincident
Variable movement timing is at the same time relative to aggregate economic activity.
Lagging
Variable movement timing is after relative to aggregate economic activity.
What components are part of the AD-AS model?
- Aggregate demand curve
- Short-run aggregate supply curve
- Long-run aggregate supply curve
- Plotted with a relationship between price and real GDP (Y)
Aggregate demand curve
Shows quantity of goods and services demanded (Y) for any price level (P).
- Higher P means less aggregate demand (lower Y), so the aggregate demand curve slopes downwards.
Aggregate supply curve
- The aggregate supply curve shows how much output producers are willing to supply at any given price level.
- Short-run ASC: horizontal; prices are fixed.
- Long-run ASC: vertical at the full-employment level of output.
Aggregate demand shocks
A change that shifts the aggregate demand curve.
What factors cause aggregate supply shocks?
Changes in productivity and labour supply.
