ECN 204 Lecture Notes - Lecture 13: Business Cycle, Real Income, Hyperinflation

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Business cycle: alternating increases and decreases in the level of economic activity, sometimes over several years. Factors that cause business cycles: irregular innovation, productivity changes, monetary factors, monetary factors, political events, financial instability. Businesses producing capital goods (housing, commercial buildings, heavy equipment) and consumer durables (cars, fridge"s) are most affected by business cycles. Discouraged workers: people who left the labor force because they couldn"t find work. Frictional: unemployment caused by workers who are voluntarily changing jobs and by temporary layoffs. Structural: unemployment of workers who skills are not demanded by employers, who lack sufficient skills to gain employment, or those who cannot easily move to locations where jobs are available. Cyclical: unemployment caused by a decline in total spending, begins in the recession phase. Definition: economy is fully employed when it is experiencing only frictional, structural, and seasonal unemployment, when there is no cyclical unemployment.

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