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Canada (161,661)
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ECN 204 (282)
Chapter 7

chapter 7

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ECN 204
Tom Barbiero

Chapter 7 The business cycleThe expansion of the economy has been interrupted by fluctuations accompanied by business cycles Business cycles are the fluctuating increase and decrease in the level of economic activityA cycle a peak varies in terms of the length of time it remains and the intensity of the cycle Phases of the business cycleA peak is where the economy has reached it maximum potential for a short period of time it achieves this when the economy is almost fully utilizing or fully utilizing its resources or very close to the economys capcityA recession is an interval of time where there is a decrease in output income and employment and is marked with the shrinkingdecline of business activityThe trough portion of the business cycle is where income total output and employment After the trough phase of the business cycle the economy experiences expansion where increase real gdp and employment increase towards full employmentBusiness cycles are different from each other in terms of the length of time they remain and the intensity of the cycleBusiness fluctuations is preferred over the business cycles because business cycles imply something that will occur regularly while fluctuations do not Causation a First GlanceA key issues in macroeconomics is why business cycles fluctuate around the long run growth trendOne group of economists believe that one in a while inventions greatly influence investment and spending thus this greatly influences output employment and the price levelbecause they occur at random intervals this causes hocks in the economy and prices do not adjust quicklyAnother group believes that business cycles are caused by unexpected fluctuations in productivity where when productivity skyrockets the economy enjoys a phase of prosperity and if productivity declines the economy contracts Another group believes that the business cycles is a result of monetary phenomenon where when the government prints more money than what its population were expecting inflation occursif the reverse were to occur there would be a decline in in output employment and price level Some believe that the business cycle is caused by financial bubbles and burts which spill over through optimism or pessimism to affect production of goods and servicesThe majority of economists agree that the main factor that drives the fluctuations in the levels of real output and the amount of people who are employed is unexpected consumer spendingThe cause of recession 20082009
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