ECN 204 Chapter Notes - Chapter 9: Unemployment, Nominal Rigidity, Durable Good
4 Apr 2016
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Chapter 9 business cycles, unemployment and inflation. Alternating increases and decreases in economic activity over time. Economist prefer to talk of business fluctuations because cycles vary in duration and intensity. Peak business activity reaches a temporary maximum with full employment and at or near-capacity output. Recession decline in total output, income, employment, and trade lasting six months or more. Trough output and employment bottom out at their lowest levels of the recession. Expansion output and employment are expanding towards their full- employment level. Fluctuations in output and employment are caused by shocks combined with sticky prices. Shocks: unexpected events that individuals and firms may have trouble adjusting to. Sticky prices: the economy is forced to respond to shocks in the short run primarily through changes in output and employment rather than through changes in prices. Significant new products or production methods can rapidly spread and spark increases in investment, consumption, output and employment.
