Macroeconomics - Economic Fluctuations and Business Cycles

10 important questions on Macroeconomics - Economic Fluctuations and Business Cycles

What are economic fluctuations or business cycles?


Short-run changes in the growth rate of real GDP

What are periods of negative growth in GDP?

Downturns, contractions, recessions

What are economic expansions?

The periods after a recession, when you move from a trough to a peak. An economic expansion begins at the end of one recession and continues until the start of the next recession.
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What are 3 key properties of economic fluctuations?

1) Co-movement
2) Limited Predictability in Turning Points
3) Persistence in the Growth Rate

Explain the first key property of economic fluctuations: What is Co-movement?

Many economic variables grow or contract together during economic booms and recessions

What is an example of a co-movement?

Consumption and investment
Explanation: When consumption growth is high, investment growth tends to be high as well.

Explain the second key property of economic fluctuations: What is Limited Predictability of Turning Points ?

It is difficult to predict beginning or endings of recessions. They do not follow a repetitive cycle.

What is an example of a negative co-movement?

Example: Unemployment and GDP.
If unemployment is high, GDP tends to fall

Explain the third key property of economic fluctuations: What is Persistence in the Rate of Growth?

Economic growth is not random. When growth is positive, the growth in the next quarter will probably also be positive.

if not: turning point

What is a recession?

When there is an economic decline which lasts longer than 2 quarter. It is a period of negative economic growth.

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