Macroeconomics: Economic Fluctuations and Business Cycles

Flashcards covering key concepts from the lecture notes on macroeconomics, focusing on economic fluctuations and business cycles.

What are economic fluctuations and business cycles primarily defined as?

Short-run changes in the growth of real GDP.

What defines a recession?

A significant decline in economic activity lasting more than a few months, visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

What is a boom (expansion) in economic terms?

A period of positive growth between recessions.

What is the business cycle pattern?

The sequence of recession, trough, growth period, and peak.

What does RBC theory emphasize?

Technology and productivity growth.

According to Keynesian Theory, what psychological factors influence economic fluctuations?

Animal Spirits that lead to changes in mood and expectations of households and firms.

What did Milton Friedman propose regarding monetary theory?

That monetary factors, like the supply of money (M2), drive business cycles.

What are the initial causes of decreased demand for labor at the start of a recession?

Fall in output prices, decrease in output demand, decrease in labor productivity, and rise in input prices.

What happens during the multiplier effect in a recession?

A drop in demand for labor leads to higher unemployment, reduced household income, decreased consumption, and further demand decline.

What are the natural market forces that increase demand for labor during a recovery?

Inventory rebuilding, technological advancements, and financial intermediation.

What does a partial recovery entail concerning labor demand?

Increased labor demand due to higher productivity but still no increases in wages.

What indicates a full recovery in the labor market?

Demand for labor continues to increase, leading to rises in real wages.

In recent economic analysis, what happens to output, consumption, and investment during recessions?

Theory predicts decreases in these variables during recessions, which is empirically supported.

What significant shift occurred in wages during the 2020 recession?

While total wages decreased, average wages increased, indicating disproportionate effects on low-income workers.

How have U.S. unemployment insurance claims changed since the 2008 recession?

Claims are declining but remain significantly higher than peak numbers during the 2008 recession.

What do current employment figures suggest about the state of the labor market post-recession?

Total employment is still at alarmingly low levels, despite indications that the worst may be over.

What is the Keynesion Theory?

A theory that emphasizes future expectations and multiplier effects. It suggests that government intervention can help manage economic cycles and stimulate demand, especially during recessions.

At the beginning of a recession, why does demand for labor decrease?

1. Fall in output prices

2. Decrease in output demand

3. Decrease in labor productivity

4. Rise in input prices

What is the complete business cycle?

1. Pre-recession equilibrium

2. Recessionary trough

3. Partial recovery. Lower employment, but no increases to wages

4. Full recovery including wage growth