Ebook Macroeconomics (8th edition): Part 2
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Ebook Macroeconomics (8th edition): Part 2
ChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2e the behavior of various variables over the course of business cycles.8.4Use aggregate demand and aggregate supply to describe the impact on business cycles of various shocks.Since the Industrial Revolution, the economies of the United States and many other countries have grown tremendously. That g Ebook Macroeconomics (8th edition): Part 2rowth has transformed economies and greatly improved living standards. Yet even in prosperous countries, economic expansion has been periodically inteEbook Macroeconomics (8th edition): Part 2
rrupted by episodes of declining production and income and rising unemployment. Sometimes—fortunately, not very often—these episodes have been severe ChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2th.This repeated sequence of economic expansion giving way to temporary decline followed by recovery, is known as the business cycle. The business cycle is a central concern in macroeconomics because business cycle fluctuations—the ups and downs in overall economic activity—are felt throughout the e Ebook Macroeconomics (8th edition): Part 2conomy- When the economy is growing strongly, prosperity is shared by most of the nation's industries and their workers and owners of capital. When thEbook Macroeconomics (8th edition): Part 2
e economy weakens, many sectors of the economy experience declining sales and production, and workers are laid off or forced to work only part-time. BChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2uses of these episodes and to determine what, if anything, can be done to counteract them. The two basic questions of (1) what causes business cycles and (2) how policymakers should respond to cyclical fluctuations are the main concern of Part 3 of this book.The answers to these two questions remain Ebook Macroeconomics (8th edition): Part 2 highly controversial. Much of this controversy involves the proponents of the classical and Keynesian approaches to macroeconomics, introduced in ChaEbook Macroeconomics (8th edition): Part 2
pter 1. In brief, classical economists view business cycles as generally representing the economy's best response to disturbances in production or speChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2ts argue that, because wages and prices adjust slowly, disturbances in production or spending may drive the economy away from its most desirable level of output and employment for long periods of time. According to the Keynesian view, government should intervene to smooth business cycle fluctuations Ebook Macroeconomics (8th edition): Part 2.We explore the debate between classicals and Keynesians, and the implications of that debate for economic analysis and macroeconomic policy, in ChaptEbook Macroeconomics (8th edition): Part 2
ers 9-11. In this chapter we provide essential background for that discussion by presenting the basic features of the business cycle. We begin with a ChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2s, or “business cycle facts." We conclude the chapter with a brief preview of the alternative approaches to the analysis of business cycles.280CHAPTERS I Business Cycles 2818.1 What Is a Business Cycle?Define and describe the business cycle.Countries have experienced ups and downs in overall economi Ebook Macroeconomics (8th edition): Part 2c activity since they began to industrialize. Economists have measured and studied these fluctuations for more than a century. .Marx and Engels referrEbook Macroeconomics (8th edition): Part 2
ed to "commercial crises," an early term for business cycles, in their Communist Manifesto in 1848. In the United States, the National Bureau of EconoChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2es to update the business cycle chronology, a detailed history of business cycles in the United States and other countries. The NBER has also sponsored many studies of the business cycle: One landmark study was the 1946 book Measuring Business Cycles, by Arthur Burns (who served as Federal Reserve c Ebook Macroeconomics (8th edition): Part 2hairman from 1970 until 1978) and Wesley Mitchell (a principal founder of the NBER). This work was among the first to document and analyze the empiricEbook Macroeconomics (8th edition): Part 2
al facts about business cycles. It begins with the following definition:Business cycles are a type of fluctuation found in the aggregate economic actiChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2mic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years.1Five points in this de Ebook Macroeconomics (8th edition): Part 2finition should be clarified and emphasized.1Aggregate economic activity. Business cycles are defined broadly as fluctuations of "aggregate economic aEbook Macroeconomics (8th edition): Part 2
ctivity" rather than as fluctuations in a single, specific economic variable such as real GDP. Although real GDP may be the single variable that most ChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2 and financial market variables.2Expansions and contractions. Figure 8.1—a diagram of a typical busmess cycle—helps explain what Burns and Mitchell meant by expansions and contractions. The dashed line shows the average, or normal, growth path of aggregate economic activity, as determined by the fac Ebook Macroeconomics (8th edition): Part 2tors we considered in Chapter 6. The solid curve shows the rises and falls of actual economic activity. The period of time during which aggregate econEbook Macroeconomics (8th edition): Part 2
omic activity is falling is a contraction or recession. If the recession is particularly severe, it becomes a depression. After reaching the low pointChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2 is an expansion or a boom. After reaching the high point of die expansion, the peak (P), aggregate economic activity begins to decline again. The entire sequence of decline followed by recover}1-, measured from peak to peak or trough to trough, is a business cycle.Figure 8.1 suggests that business Ebook Macroeconomics (8th edition): Part 2cycles are purely temporary deviations from the economy's normal growth path. However, part of the output losses and gains that occur during a businesEbook Macroeconomics (8th edition): Part 2
s cycle may become permanent.Peaks and troughs in the business cycle are known collectively as turning points. One goal of busmess cycle research is tChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2 3 I Business Cycles and Maơoeconomtc PolicyFIGURE 8.1A business cycleThe solid curve graphs the behavior of aggregate economic activity over a typical business cycle. Hie dashed line shows the economy's normal growth path. During a contraction aggregate economic activity falls until it reaches a tr Ebook Macroeconomics (8th edition): Part 2ough, T. The trough is followed by an expansion during which economic activity increases until it reaches a peak, p. A complete cycle is measured fromEbook Macroeconomics (8th edition): Part 2
peak to peak or trough to trough.Aggregate economic activity isn't measured directly by any single variable, so there's no simple formula that tells ChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2rmine that date. The committee meets only when its members believe that a turning point may have occurred. By examining a variety of economic data, the committee determines whether a peak or trough has been reached and, if so, the month it happened. However, the committee's announcements usually com Ebook Macroeconomics (8th edition): Part 2e well after a peak or trough occurs, so their judgments are more useful for historical analysis of business cycles than as a guide to current policymEbook Macroeconomics (8th edition): Part 2
aking.3Coniovement. Business cycles do not occur in just a few sectors or in just a few economic variables. Instead, expansions or contractions "occurChapterBusiness CyclesLearning Objectives8.1Define and describe the business cycle.8.2Summarize the history of the American business cycle.8.3Describe Ebook Macroeconomics (8th edition): Part 2employment in most industries tend to fall in recessions and rise in expansions. Many other economic variables, such as prices, productivity, investment, and government purchases, also have regular and predictable patterns of behavior over the course of the business cycle. The tendency of many econo Ebook Macroeconomics (8th edition): Part 2mic variables to move together in a predictable way over the business cycle is called comovement.4Recurrent bill not periodic. The business cycle isn’Ebook Macroeconomics (8th edition): Part 2
t periodic, in that it does not occur at regular, predictable intervals and doesn't last for a fixed or predetermined length of time. ("In Touch withGọi ngay
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