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Chapter 7

Chapter 7 Intro to Macroeconomics Notes

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ECON 1100
Bram Cadsby

Chapter 7 Macro Shortterm Economic Fluctuations an IntroductionRecessionsExpansionsRecession or contraction a period in which the economy is growing at a rate significantly below normal Period during which real GDP falls for at least 2 consecutive quarters Beginning of a recession is called the peak The end of the recession is called a trough Expansion a period in which the economy is growing at a rate significantly above normalBoom a particularly strongprotracted phase of expansion Characteristics of Shortterm Fluctuations Expansionsrecessions usually arent limited to a few industries or regions but are felt throughout the economy Unemployment is a key indicator of shortterm economic fluctuations The part of unemployment relate to recessions is called cyclical unemployment Inflation follows a typical pattern in recessionsexpansions Recessions tend to be followed soon after by decline in rate of inflation Industries that produce durable goods such as cars housescapital equipment are more affected than others by recessionsbooms Industries that provide servicesnondurable goods eg food are much less sensitive to shortterm fluctuationsMeasuring Fluctuations Output GapsCyclical UnemploymentPotential OutputThe Output GapPotential Outputor potential GDP or fullemployment output Y the amount of outputreal GDP that an economy can produce when using its resources such as capitallabour at normal rates Not a fixed number but grows over time reflecting increases in both the amounts of a
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