1 / 8

The Business Cycle & the Rule of 70

The Business Cycle & the Rule of 70. The Business Cycle. The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy. Historic U.S. Business Cycles.

jensen
Download Presentation

The Business Cycle & the Rule of 70

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Business Cycle & the Rule of 70

  2. The Business Cycle • The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy

  3. Historic U.S. Business Cycles • 11 recessions since WWII with an average length of 10 months; average expansion is 5 years, 7 months • Full business cycles range from 18 months to 10 years, 8 months

  4. Implications of Business Cycle • Two measures are used to determine recessions: • Unemployment • GDP • Macroeconomic analysis is aimed at making policy decisions that shorten recessions and lengthen expansions

  5. Unemployment • Employed + Unemployed = Labor force • Unemployment rate is the percentage of labor force unemployed • Unemployment goes up during a recession, down during an expansion (over the long term) – but there is ALWAYS unemployment • Relationship between aggregate output (GDP) and unemployment is inverse

  6. Inflation • Because prices have kept pace with (and in some areas exceeded) wage gains in last 40 years, there has been little impact on standard of living • Inflation is an increase in overall price level; deflation is its opposite • Inflation causes increased spending; deflation causes increased savings – both have negative impacts, so price stability is a goal of macroeconomics

  7. Rule of 70 • Long-run economic growth is accomplished gradually; GDP grows a few percent per year at most. • Rule of 70 is used to determine how many years it takes for GDP to double at its current rate of growth • Rule of 70 can only be applied to positive growth rates

  8. Where are we now? Chart of Inflation 2011-2013

More Related