ECN 204 Lecture : Chapter #14 ECN.docx
1 May 2012
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Document Summary
Over the long run, real gdp grows about 2% per year on average. In the short run, gdp fluctuates around its trend. Recessions: periods of falling real incomes and rising unemployment. Short-run economic fluctuations are often called business cycles. Fluctuations correspond to changes in business conditions. When gdp grows rapidly, the business is good. Firms find that customers are plentiful and that profits are growing. Firms experience declining sales and dwindling profits. Three key facts about economic fluctuations: economic fluctuations are irregular and unpredictable, most macroeconomic quantities fluctuate together. When gdp falls so does the income and revenues. Macroeconomic variables fluctuate together but they fluctuate by different amounts. Less investments made on plants, factories, business: as output falls, unemployment rises. Correlated with utilization of its labour force. When firms choose to produce a smaller quantity of goods and services, they lay off workers, expanding the pool of unemployment.
