Business cycles Flashcards
(14 cards)
What is a business cycle
The level of economic changes over time, the periods of expansion and slowdown
Define a recession
A period of declining real incomes and rising unemployment
(Technically when there are two successive quarters of negative real economic growth)
Define a depression
A severe recession
Define a contraction
When real output is lower than previous time period
Define an expansion
When real output is greater than the previous time period
Define procyclical variable
A variable that is above trend when GDP is above trend
Define countercyclical variable
A variable that is below trend when GDP is above trend
For example, unemployment
Define a leading indicator
Foretells future changes in economic activity
Define a lagging indicator
Changes after the economic activity has changed
What are some of the most frequent explanations in short run variation in economic activity
- government policy
- external shocks
- decisions by firms and households
What would Keynesians say about business cycle models
They reflect imperfections of capitalism that we can and should fix
What would Marxists say about business cycles
They reflect imperfections of capitalism but must be replaced
What would Hayekians (Austrian school) say about business cycles
Business cycles are a natural feature so there is nothing to fix
What would monetarists say about business cycles
There is something to fix but governments will get it wrong
