ECON 2200 Lecture Notes - Lecture 5: Purchasing Power Parity, Income Approach, Toyota Avalon
Document Summary
Business cycles: the alternating increases and decreases in economic activity: business cycles vary in intensity and duration, generally, they show a long-term upward trend, the 4 phases include: peak, recession, trough, and recovery. A recession begins after 2 consecutive quarters of negative growth. A double-dip recession occurs when a recovering economy does not reach its former peak. Weighed average of 85 indicators of economic activity. Recession likely if index falls 3 months in a row. Yield curve: shows interest rates for bonds (vertical axis) with different maturity rates (horizontal axis) The more people who want the bonds, the less the interest rates. When the interest rate of long-term bonds is greater than the interest rate short- term treasury bills are a recession prediction. Federal fund rate: interest rate the fed charges the bank. Treasury spread: when short-term interest rates exceed long-term rates, the treasury spread turns negative, which has been a reliable predictor of a pending recession.
