ECN 204 Chapter 7: Chapter 7 Lecture Notes

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Economists distinguish four phases of the business cycle; the duration and strength of each phase may vary. Fluctuation in output and employment are caused by shocks combined with sticky prices. Recent decline in price of gas and oil. Shocks unexpected events that individuals and firms may have trouble adjusting to. Sticky prices the economy is: causes of shocks: employment rather than through changes in prices forced to respond to shocks in the short run primarily though changes in output and. Irregular innovation: productivity changes, monetary factors, political events, terrorist attracts, financial instability, recession of 2008-2009. Cyclical impact: durables and nondurables: durable good affected the most, capital good, consumer durables, affected the most during a recession, nondurable consumer goods affect less, services, food and clothing. 7. 2 unemployment: unemployment rate = # of unemployed / labor force. Individuals not in the labor force may join it: temporarily: unemployment rate < nru, nru not fixed but varies over time.

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