ECO10004 Lecture Notes - Lecture 7: Business Cycle, Price Level, Gdp Deflator
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Economic growth: e(cid:454)pa(cid:374)sio(cid:374) of so(cid:272)iet(cid:455)(cid:859)s produ(cid:272)tive pote(cid:374)tial, usuall(cid:455) (cid:373)easured (cid:271)(cid:455) the rate of growth in real gdp. Business cycle: alternating periods of economic expansion and contraction relative to the trend of economic growth. Expansion: period of the business cycle during which total production and total employment are increasing above trend growth. Production is strong and capacity is heavily utilised; and unemployment is decreasing to much lower levels. When these factors are strong and pronounced (e. g. very high production growth, capacity utilisation and employment), the economy is said to be in a boom. Higher interest rates (demand for money * relative to supply); Contraction: period of the business cycle during which total production and total employment are falling below trend growth. Increased costs via higher interest rates and wage pressures. A realization that debt levels become unsustainable and asset prices are too high. Recession: period of the business cycle during which total production and total employment are decreasing.
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