ECON 209 Lecture : ECON 209 Chapter 19 Business Cycles.docx

• School: McGill University
• Department: Economics
• Course: ECON 209
• Professor: Paul Dickinson

Document Summary

Level of output that is low in relation to productive capacity. Business profits are low, can be negative. Firms make low risk decisions (unwilling to risk new investments) Expectations become more favourable (investments may be undertaken) Production can be reemployed fairy easily merely by reemploying unused capacity and unemployed labour. Existing capacity used to a high degree. Labour and raw material shortages may develop. Shortages = rising costs, but prices rise w/ them so economic activity remains profitable. Output falls = employment falls = household income falls = prices drop. Firms run into financial difficulties; investments that looked profitable no longer appear so. It may not even be worth replacing worn out capital b/c unused capacity is increasing steadily.