Introduction to Business Cycles

Vocabulary flashcards covering business cycle definitions, phases, co-movement, timing of economic indicators, and empirical regularities from macroeconomic lecture notes.

Business Cycles (Burns and Mitchell definition)

Fluctuations in aggregate economic activity in which many economic activities expand and contract together in a recurring, but not a periodic, fashion (Arthur Burns and Wesley Mitchell, 1946).

Peak

The turning point of a business cycle where economic activity shifts from an expansion to a contraction.

Trough

The turning point of a business cycle where economic activity shifts from a contraction to an expansion.

Business Cycle Expansion (Boom)

A phase of the business cycle characterized by increasing aggregate economic activity, occurring between a trough and a peak.

Business Cycle Contraction (Recession)

A phase of the business cycle characterized by falling aggregate economic activity, occurring between a peak and a trough.

Potential Output ($Y^P$)

The long-run trend level of aggregate economic output.

Output Gap

The short-run deviation of aggregate output ($Y$) from potential output ($Y^P$), represented by the formula $Y - Y^P$.

Okun's Law

The negative empirical relationship observed between real GDP growth and changes in the unemployment rate.

Procyclical Variable

An economic variable that moves up during business cycle expansions and moves down during contractions.

Countercyclical Variable

An economic variable that moves down during business cycle expansions and moves up during contractions.

Acyclical Variable

An economic variable with fluctuations and turning points that do not coincide with those of the business cycle.

Leading Variable

An economic variable that reaches a peak or trough before the turning points of the aggregate business cycle.

Lagging Variable

An economic variable that reaches a peak or trough after the turning points of the aggregate business cycle.

Coincident Variable

An economic variable that reaches a peak or trough at the same time as the business cycle.

Index of Leading Economic Indicators

A composite index published monthly by the Conference Board that combines $10$ leading variables to forecast changes in economic activity $6\text{ to }9$ months into the future.

Long-Run Trend Growth of Real GDP

The average growth rate of real GDP over the long run, which typically averages $3\text{ to }3.5\%$ per year despite short-run fluctuations.

Volatility of Consumption vs. Investment

A macroeconomic business cycle fact stating that while both components fluctuate alongside GDP, consumption is less volatile than GDP, whereas investment is more volatile than GDP.