the business cycle the rule of 70 n.
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The Business Cycle & the Rule of 70. The Business Cycle. The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy. Historic U.S. Business Cycles.

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Presentation Transcript
the business cycle
The Business Cycle
  • The business cycle refers to the natural pattern of upturns (expansions, recoveries) & downturns (depressions, recessions) in the macroeconomy
historic u s business cycles
Historic U.S. Business Cycles
  • 11 recessions since WWII with an average length of 10 months; average expansion is 5 years, 7 months
  • Full business cycles range from 18 months to 10 years, 8 months
implications of business cycle
Implications of Business Cycle
  • Two measures are used to determine recessions:
    • Unemployment
    • GDP
  • Macroeconomic analysis is aimed at making policy decisions that shorten recessions and lengthen expansions
unemployment
Unemployment
  • Employed + Unemployed = Labor force
  • Unemployment rate is the percentage of labor force unemployed
  • Unemployment goes up during a recession, down during an expansion (over the long term) – but there is ALWAYS unemployment
  • Relationship between aggregate output (GDP) and unemployment is inverse
inflation
Inflation
  • Because prices have kept pace with (and in some areas exceeded) wage gains in last 40 years, there has been little impact on standard of living
  • Inflation is an increase in overall price level; deflation is its opposite
  • Inflation causes increased spending; deflation causes increased savings – both have negative impacts, so price stability is a goal of macroeconomics
rule of 70
Rule of 70
  • Long-run economic growth is accomplished gradually; GDP grows a few percent per year at most.
  • Rule of 70 is used to determine how many years it takes for GDP to double at its current rate of growth
  • Rule of 70 can only be applied to positive growth rates
where are we now
Where are we now?

Chart of Inflation 2011-2013