potential output and why actual output can differ from potential output? (2 marks) Potential output is the amount of output that an economy can produce when using its resources such as capital and labour‚ at normal rates. Potential output is not a fixed number but grows over time‚ reflecting increases in both the amounts of available capital and labour and their productivity. As capital and labour can be utilised at greater than normal rates‚ at least for a time‚ a country’s actual output can
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BUSINESS CYCLES Trend and cycle of the business cycle Phases of the cycle Pro‐cyclical‚ counter‐cyclical‚ and a‐cyclical variables Lead‚ lagged‚ and contemporary variables Stylized facts and cyclical behavior of key macroeconomic variables 2 BUSINESS CYCLES Over time GDP grows but not in a linear way GDP 2006 constant prices (in logs) 6.5 6.3 6.1 5.9 5.7 5.5 5.3 5.1 4.9 4.7 4.5 3 BUSINESS CYCLES Time Series Components 1. 2. 3. 4. Trend (long‐run) Cycle (short‐run)
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Chapter 10 (Business Cycles) Business Cycles (business Flucuations) The ups and downs in economy wide economic activities are called business cycles or busyiness fluctuations. When business fluctuations are positive they are called expansion‚ the opposite of expansion is contraction which is slow down in the pace of national economic activities. Phases of the business cycle over a several year period 1. A peak is when business activity reaches a temporary maximum with full employment and near
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in economics. Macroeconomists study aggregated indicators such as GDP‚ unemployment rates‚ and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income‚ output‚ consumption‚ unemployment‚ inflation‚ savings‚ investment‚ international trade and international finance. In contrast‚ microeconomics is primarily focused on the actions of individual agents‚ such as firms and consumers‚ and how their behavior determines prices and
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Phases of Business Cycle Business Cycle (or Trade Cycle) is divided into the following four phases :- Prosperity Phase : Expansion or Boom or Upswing of economy. Recession Phase : from prosperity to recession (upper turning point). Depression Phase : Contraction or Downswing of economy. Recovery Phase : from depression to prosperity (lower turning Point). Diagram of Four Phases of Business Cycle The four phases of business cycles are shown in the following diagram :- The business cycle
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ASSIGNMENT 1 Introduction In macroeconomics‚ business cycle played an important role to show what a national economy is going; therefore‚ this essay will define what business cycle is and its characteristics. Besides‚ all of variables such as Real Gross Domestic Product (RGDP)‚ inflation and unemployment rate and their behaviour in the business cycle will be also demonstrated in the second part. The final part of this essay will analyse and compare the situation of Australian economy and USA
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The business cycle is like a roller coaster and this roller coaster definitely has its dips and peaks. In the cycle there are expansionary periods‚ peaks‚ downturns‚ and troughs. Each one is part of and essential in the cycle. Like a roller coaster you will go up and reach a peak and then you will have to drop. Although just because you drop does not mean you will reach the lowest point of the ride. Just like a coaster the business cycle has its high peaks and plunging drops. So lets start the
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A Presentation on Different phase of Business Cycle Business Cycles √ The term business cycle refers to the recurrent ups and downs in the level of economic activity‚ which extend over several years. √ Individual business cycles may vary greatly in duration and intensity. √ All display a set of phases. THE BUSINESS CYCLE Phases of the Business Cycle RECESSION TROUGH RECOVERY Level of business activity PEAK Time Level of business activity PEAK H T OW D R G N E R T Time √ Peak or prosperity phase:
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ECO2021 The Business Cycle The business cycle‚ it is also called economic cycle‚ are periodically and unstable levels in the economy that an economy has in different periods of time. Even though it was considered to be predictable and stable‚ it is now considered as unpredictable‚ and unstable that could vary in any time. The Business cycle will guide the businesses‚ industries‚ and companies to act in a specific way‚ depending in which of the 4 phases the business cycle is. Since business cycle could
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perfection. Consumers are fickle‚ the economy is global‚ and information is imperfect. As a result‚ contractions and expansions of an economy’s real output over time are inevitable. And while these fluctuations are the result of natural interactions between sellers and buyers‚ government intervention also affects these intervals. The business cycle is unavoidable because‚ in part‚ it is the economical representation of a volatile element: human psychology. In the example above‚ consumers are predictable
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