Economics Readings Flashcards

NBER Business Cycle Dating Committee

  • The National Bureau of Economic Research (NBER) business cycle dating committee plays a crucial role in maintaining the chronology of U.S. business cycles.

  • This chronology identifies the months of peaks and troughs in economic activity.

Distinction Between Expansions and Recessions

  • Expansions:

    • Defined as the period between the trough (lowest point of economic activity) and the peak (highest point).

    • Considered the normal state of the economy.

  • Recessions:

    • The period between the peak and trough.

    • Classified as a significant decline in economic activity lasting more than a few months.

  • By convention, the NBER classifies the peak month as the last month of the expansion and the trough month as the last month of the recession.

Recent Business Cycle Data

  • According to the Enberg Chronology:

    • Most recent peak: February 2020.

    • Most recent trough: April 2020.

NBER Definition of Recession

  • A recession is characterized by:

    • A significant decline in economic activity across the economy.

    • A duration lasting more than a few months.

    • Three criteria are emphasized: depth, diffusion, and duration.

    • These criteria are somewhat interchangeable, meaning extreme conditions in one area may compensate for weaker indications in others.

    • Example:

    • In February 2020, despite the brief nature of the downturn, the dramatic decline in activity warranted classification as a recession.

Criteria for Determining Peaks and Troughs

  • Determined by a range of monthly measures of aggregate real economic activity published by federal statistical agencies. Key indicators include:

    • Real personal income less transfers.

    • Nonfarm payroll employment.

    • Household survey employment.

    • Real personal consumption expenditures.

    • Manufacturing and trade sales adjusted for price changes.

    • Industrial production.

  • No fixed rules govern what measures contribute to this process or how they are weighted, but recent decades have seen an emphasis on:

    • Real personal income less transfers.

    • Nonfarm payroll employment.

  • The committee assesses quarterly peaks and troughs based on these aggregated measures of economic activity.

Quarterly and Annual Economic Indicators

  • Two vital measures for determining quarterly peaks and troughs are estimates of:

    • Real Gross Domestic Product (GDP).

    • Gross Domestic Income (GDI).

  • The committee also considers quarterly averages of monthly indicators like payroll employment and conducts a retrospective approach in identifying turning points in the business cycle.

Timing of Announcements

  • The committee usually waits for sufficient data to minimize major revisions before announcing peak and trough dates.

  • A new expansion is recognized immediately following the announcement of a peak, while any activity drop after an announcement is considered a new recession.

Say's Law

  • Say's Law is a key tenet in classical economics, associated with the economist Jean Baptiste Say (1767-1832).

  • Say held various positions, including soldier, government official, and professor.

  • His notable work, the Treatise on Political Economy (1803), became a standard text for decades in the United States.

Main Proposition

  • Say's Law can be summarized as: "Supply creates its own demand." This means that goods produced will generate an equal demand for other goods through their sale.

  • Say argued that in a competitive market:

    • Shortages and surpluses in resource markets would be corrected through price adjustments until supply equals demand.

Example of Equilibrium in Labor Market

  • An equilibrium wage might be established at:

    • 5 ext{ per hour}.

    • At this wage, all labor hours offered for sale would be demanded by firms, leading to full employment of resources.

Relationship between Output and Income

  • The market value of Gross National Product (GNP) equals the total income earned, which includes:

    • Wages, rents, interests, taxes, depreciation allowances, and profits.

  • Say illustrated that as new products are created, they immediately create markets for products of equal value.

Savings and Investment Dynamics

  • Say posited that saving money does not hinder demand.

  • Savings would be lent in a loanable funds market where:

    • An equilibrium interest rate of 4 ext{%} is established, balancing supply and demand.

  • Irresponsible behavior from savers (hoarding money) can lead to reduced demand and potential economic downturns.

Adjustments in Economy Following Investment Fluctuations

  • Temporary decreases in output resulting from hoarding would lead to:

    • Price adjustments.

    • Changes in input prices, restoring incentives for producers.

  • Say's Law posits that any supply of goods creates corresponding demand in the market, thus maintaining that supply always creates its own demand, known as Say's Law.

Labor Relations and Economic Policy

Context of Trade Unions

  • In mid-1920s, trade unions began to mobilize against economic assumptions favoring free competition.

    • The argument was that trade unions, filled with growing power, were vital in protecting workers from economic forces they did not initiate.

  • This shift indicated a growing demand for new methods of governance over economic forces to ensure social stability and justice.

Economic Reports and Analysis

Annual Economic Report (1962)

  • The report emphasized the influence of large firms in various sectors concerning wage and price negotiations and their broader implications on the economy.

  • Significant decisions in the economy stem both from the private sector and public interest.

Guidelines on Wage and Price Behavior

  • Suggested that wage increases relate to productivity rates and must be aligned to ensure economic stability.

  • General Guidepoints:

    • Wage growth should align with productivity growth; overshooting or undershooting impacts economy functioning.

  • Two key conditions modify wage guide principles based on labor market pressures.

Bureau of Economic Analysis (BEA)

GDP Estimates for 2025

  • Advanced estimate indicated a real GDP increase of 1.4% in Q4 2025, influenced by consumer spending and investment while governmental spending decreased.

  • Changes and revisions in earlier GDP figures highlighted a need for greater vigilance on employee growth behavior.

Global Economy and sustainability

UN's Call for Economic Re-evaluation

  • UN Secretary-General, António Guterres, called for a departure from traditional growth measurements like GDP to address environmental degradation and inequities.

  • The focus should be not just on economic growth but on creating systems that prioritize sustainability and equality.

  • This includes measuring success based on human well-being and environmental health, rather than merely financial metrics.

Consequences of Reliance on GDP

  • Overreliance on GDP as a metric has led to an overlooking of significant social and environmental issues such as climate change and inequality.

  • Movements toward alternative economic models are gaining momentum, aiming for a well-being economy that values more than just financial growth.

Bureau of Labor Statistics Summary

Employment and Unemployment Statistics Report

February Employment Report

  • Non-farm payroll employment edged down 92,000 in February, with an unemployment rate stabilized at 4.4%.

  • Significant sectors like healthcare experienced employment declines due to strikes, indicating labor market sensitivity to industrial actions.

Demographic Breakdown of Employment

  • Unemployment rates varied among demographic groups:

    • Adult men: 4.0%

    • Adult women: 4.1%

    • Teenagers: 14.9%

    • Rates were also reported for racial groups, including White (3.7%), Black (7.7%), Asian (4.8%), and Hispanic (5.2%).

Long-term Unemployment Trends

  • Long-term unemployment continues to impact overall statistics with 1,900,000 individuals primarily affected.

  • Changes in total non-farm payroll employment emphasized volatility in job creation.

Methodologies in Employment Surveys

  • Employment statistics derive from household and establishment surveys. Key definitions:

    • Employed: Individuals who worked at least 15 hours in a paid role, self-employment, or on family businesses.

    • Unemployed: Must have been without employment, available for work, and actively seeking employment in the previous four weeks.

Historical Context of Unemployment Definitions

  • Data dependency of household surveys showcases that job status impacts national metrics but does not solely rely on eligibility for unemployment benefits.

  • Major takeaway: Surveys analyze the broad labor landscape by omitting categories like military personnel or those institutionalized, focusing instead on the active labor force.