Business Cycles and Fluctuations

Study Notes

Regular patterns of economic expansion and contraction over time are known as business cycles.
Business fluctuations are variations in economic activity, including changes in GDP, employment, and production.
A recession is a significant decline in economic activity, typically marked by two consecutive quarters of negative GDP growth.
Peak and trough represent the highest and lowest points in a business cycle respectively, indicating maximum output before a downturn or the end of a recession.
Expansion is the phase of a business cycle where economic activity is increasing, leading to growth in GDP, employment and production.
A trend line shows the general direction of movement of a business cycle over time.
A depression is a prolonged and severe economic downturn, more severe than a recession.
Depression scrip was a substitute currency used during economic depressions when official currency was scarce.

Leading economic indicators predict future economic movements, examples include new orders for goods and stock market performance.
Dow Jones Industrial Average (DJIA) tracks the performance of 30 major US companies and is used as a stock market indicator.
The Leading Economic Index (LEI) is a composite index of leading indicators designed to forecast future economic activity.
Econometric models are mathematical equations used to describe economic processes and forecast trends.

Inflation is the general rise in prices over time, decreasing the purchasing power of money.
Deflation is a decrease in the general price level of goods and services, increasing the value of money.
A price index measures average price changes over time for a specific set of goods and services.
The Consumer Price Index (CPI) is a key price index that tracks changes in the cost of a fixed basket of consumer goods.
This market basket represents the goods and services tracked by a price index.
When comparing price levels across different years, a base year is used as a reference point.
Creeping inflation is a low and steady rate of inflation, typically less than 3% per year.
Hyperinflation is extremely rapid inflation, where prices rise uncontrollably, often exceeding 50% per month.
Stagflation is a situation where inflation and unemployment rise simultaneously, often during periods of stagnant economic growth.
The Producer Price Index (PPI) measures changes in selling prices received by producers for their output.
The Implicit GDP Price Deflator measures price changes in goods and services included in GDP.

Demand-pull inflation is caused by an increase in demand for goods and services exceeding supply.
Cost-push inflation is driven by rising costs of production, forcing producers to increase prices.

The civilian labor force includes individuals aged 16 and over who are working or actively seeking work.
Unemployed individuals are actively looking for work but are unable to find employment.
The unemployment rate is the percentage of the labor force that is unemployed.
Long-term unemployment lasts for an extended period, typically over 27 weeks.
Frictional unemployment is short-term unemployment caused by people transitioning between jobs or entering the workforce.
Structural unemployment is caused by changes in the economy, such as technological advancements, making certain skills obsolete.
Outsourcing involves hiring external firms or workers, often from other countries, to perform tasks previously done internally.
Technological unemployment results from job losses due to technological advancements that reduce the need for human labor.
Cyclical unemployment rises during economic downturns and falls during periods of growth.
Seasonal unemployment occurs at certain times of the year when demand for labor is low, like in farming or tourism.
The GDP gap is the difference between actual GDP and potential GDP, representing the loss of economic output due to unemployment or underutilized resources.