Class Notes (1,100,000)
CA (620,000)
McMaster (50,000)
ECON (1,000)
ECON 1BB3 (600)
Lecture 12

ECON 1BB3 Lecture Notes - Lecture 12: Business Cycle, Price Level


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy
Lecture
12

This preview shows half of the first page. to view the full 1 pages of the document.
What are business cycles and what causes them?
11/21
Business Cycles
- Economic fluctuations are irregular and unpredictable
- Economic variables fluctuate together
- If GDP increases, unemployment decreases and vice versa
Stylized Business Cycle
- Peak and trough
- Trough to peak expansion (boom)
- Peak to trough recession
o2 consecutive quarters (6 months) of declining GDP is considered a recession
Review
AD: Y = C + I + G + NX
LRAS: Y = A * F (K, L, H, N)
SRAS: Y = Ŷ + a (P – Pe)
Equilibrium
- The model is in equilibrium at the intersection of AD and SRAS
- If this point also coincides with the LRAS curve, then the economy is in the long run equilibrium (when all
curves intersect at one point)
- If Y>Ŷ, the economy is in a boom
- If Y<Ŷ, the economy is in a recession
AD Shock
-Positive net export shock
oUS finally comes roaring out of their recession
oCandian exports increase
oPrice level increases
oGDP increases
oUnemployment decreases
-Negative supply shock
oPrice of oil increases
oHigh inflation
oHigh unemployment
This is called STAGFLATION
Stagnant employment and inflation
o
You're Reading a Preview

Unlock to view full version