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Chapter 7

Chapter 7

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University of Guelph
ECON 1100
Eveline Adomait

Chapter 7: Short-Term Economic Fluctuations- An Introduction Recessions and Expansions Recession: a period in which the economy is growing at a rate significantly below normal Depression: a particularly severe or protracted recession Peak: the beginning of a recession, the high point of economic activity prior to a downturn Trough: the end of a recession, the low point of economic activity prior to a recovery Expansion: a period in which the economy is growing at a rate of significantly above normal Boom: a particularly strong and protracted phase of an expansion Characteristics of Short-Term Fluctuations - A recession is a period in which output is growing more slowly than normal - An expansion is a period which output is growing more quickly than normal - Short-term economic fluctuations are irregular in length/severity and are difficult to predict - Expansions and recessions have widespread impacts, affecting most regions and industries - Unemployment rises sharply during a recession and falls usually more slowly during an expansion - Recessions tend to be followed by a decline in inflation and sometimes preceded by an increase in inflation - Durable goods industries are more affected by expansions and recessions than other industries - Services and non-durable goods industries are less sensitive to ups and downs in the economy Measuring Fluctuations: Output Gaps and Cyclical Unemployment - When cyclical unemployment rises in a recession it is usually not just due to job losses, it also takes the unemployed
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