Study Guides (248,412)
United States (123,352)
Economics (182)
ECON 2035 (39)
All (21)

Chapter 12 Short Run Economic Fluctuations (97% in the course

4 Pages
77 Views
Unlock Document

Department
Economics
Course
ECON 2035
Professor
All Professors
Semester
Fall

Description
Chapter 12ShortRun Economic Fluctuations121 THE BUSINESS CYCLE BusinessCycleShortrunyeartoyearfluctuationsinaneconomysoutputandunemploymentAggregateExpenditurePhilipscureAEPCmodeltheoryofshortruneconomicfluctuationsthatassumesanegativerelationshipbetweentheinterestrateandoutputtheAEcurveandapositiverelationshipbetweenoutputandinflationthePhilipscurveUnemploymentrateUpercentageofthelaborforcewithoutjobsrelatedtooutputmovetogetherPotential Output Y the normal or average level of output as determined by resources and technology StahlsdefOutputisconsistentwithusingallresourcesasefficientlyaspossibleinasustainablemannerMosteconomistgrowthrate3currentlyDoes not mean the that the potential level of output is the max amount of output that can be producedWorkers work longer hours and plants and equipment are used for longer hours than output can be higher than potential NaturalRateofUnemploymentU normal or average level of unemployment consistentwithpotentialoutput Mosteconomistgrowthrate5currentlydoes not mean that the unemployment rate is 0 always a number of people inbetween jobs at any given time thus there will be a positive unemployment rate when unemployment is at normal levels US natural rate of unemployment risen in the late 60s and 70s and to have fallen in the 90s Factors contributed to unemployment 1Distribution of the age of population 60s and 70s baby boomers were entering the workforce younger workers had the highest unemployment rate 2Productivity growth related to the cost of labor70s slowed increased labor costs led to firms hiring more workers natural rate of unemployment declined ActualoutputfluctuateerraticallyfromyeartoyearActualoutputpotentialoutputEconomicBoomoEconomicboomperiodwhenactualoutputexceedspotentialoutputOutputpotentialoutputeconomicrecessionoRecessionperiodwhenactualoutputfallsbelowpotentialoutputOutputgappercentagedifferencebetweenactualandpotentialoutputoYYYPOSITIVEBOOMNEGATIVERECESSIONBusiness Cycle Fluctuation Recession unemployment rate is higher than natural rate of employment Booms unemployment rate is lower than natural rate of employment Level of output rises the unemployment rate will fall and when the level of output falls the unemployment rate will rise OkunsLawrelationbetweenoutputandunemploymentoverthebusinesscycletheoutputgapfallsby2percentagepointswhenunemploymentrisesonepointabovethenaturalrateforeach1riseinunemploymentratetheoutputgapwillriseby2YYY2UUoEx210510outputgap10AggregateExpenditureAEtotalspendingonaneconomysgoodsandservicesbypeoplefirmsandgovernmentsaggregatespendinginaneconomySpendingincreaseoutputincreasesRecessions and booms are caused by fluctuations in total spending in the economy AE increasesspending increases oFirms sales will increase leading them to want to hire more workers and produce moreoutput will increase and unemployment will decreasevise versa when AE decreases
More Less

Related notes for ECON 2035

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit