Reading 1.3: The Busines Cycle

Key characteristics: Initial recovery

-few months long

-decelerating inflation

-large output gap

-Cyclical

Key characteristics: Early expansion

year to several

output gap narrowing

Key characteristics: Late expansion

no output gap

risk of economy overheating

high confidence

Key characteristics: slow down

months to a year or more

possible inverting curve

why is quanative easing different than open market operations

QE is done on a large scale

other purchases like MBS and corporate bondswhat w

what was the intent of QE

long term increase in bank reserves

inflation during: initial recovery

initially declining

inflation during: early expansion

low inflation

inflation during: late expansion

inflation rate increasing

inflation during: slow down

inflation continues to accelerate

inflation during: contraction

inflatino peak

economic policy during: inital recovery

stimulaitve

economic policy during: early expansion

less stimulaitve

economic policy during: late expansion

becoming restrictiveeconomic policy during:

economic policy during: slowdown

less restrictive

economic policy during: contraction

easing

Stocks/ Bonds during: initial recovery

short term rates low

long term rates bottoming

stock prices increasing

Stocks/ Bonds during: early expnasion

short term rates incresae

long term rates bottoming or increasing

stock prices increasing

Stocks/ Bonds during: late expansion

short term rates increasing

long term rates increasing

stock prices peak and volaitle

Stocks/ Bonds during: slowdown

short term rates peak then decline

long term rates peak then decline

stock prices declining

Stocks/ Bonds during: contraction

short term rates declining

long term rates declining

stock prices begin to increase in the recession