Business cycle economics ib

Is the business cycle macroeconomics or microeconomics?
The study and control of business cycles are the heart of macroeconomics.
Business cycles are a problem because output fluctuations lead to unemployment and inflation. 1.
Understand that the business cycle is made up of ups and downs in the economy..
What are the 4 phases of business cycle?
The business cycle refers to the increases and decreases in economic activity caused by factors like interest rates, trade, production costs and investments.
The four fundamental stages of the business cycle are expansion, peak, contraction and trough..
What is a business cycle in economics simple?
A business cycle is the natural expansion and contraction of economic growth that happens in an economy over a period of time.
The rise and fall of an economy's gross domestic product (GDP) defines the start and end of a business cycle, which is also known as an economic cycle or a trade cycle..
What is the business cycle in IB economics?
Business cycles characterise the periodic but irregular up-and-down movements in economic activity.
The cyclical movements involve shifts over time between periods of relatively rapid growth of output (recoveries and booms) and periods of relative stagnation or decline (contractions or recessions)..
Factors such as GDP, interest rates, total employment, and consumer spending can help determine the current stage of the economic cycle.
The circular flow model demonstrates how money moves from producers to households and back again in an endless loop.
In an economy, money moves from producers to workers as wages and then back from workers to producers as workers spend money on products and services.
The purpose of a business cycle is to track economic activity.
In practical terms, the business cycle tracks the state of an economy from expansion to contraction and recession.
It can affect how you spend, how you invest, and how you access credit.

Business cycles characterise the periodic but irregular up-and-down movements in economic activity. The cyclical movements involve shifts over time between periods of relatively rapid growth of output (recoveries and booms) and periods of relative stagnation or decline (contractions or recessions).

The business cycle model shows the fluctuations in a nation's aggregate output and employment over time. The model shows the four phases an economy experiences over the long-run: expansion, peak, recession, and trough.

The model shows the four phases an economy experiences over the long-run: expansion, peak, recession, and trough. The business cycle curve is represented by the

Common misperceptions

•An expansion is not necessarily economic growth.
When an economy is recovering from a recession, it is in the expansion phase of the business cycle, but it is not experiencing economic growth.
Economic growth occurs when the potential and actual output of a nation increases over time.
That growth is either shown by the dashed, upward-sloping trend line (the growth trend) in the business cycle model, or by an outward shift of the PPC.

Discussion questions

1) Why does unemployment rise during the recession phase of the business cycle?

Lesson Overview

Heraclitus once said, “Change is the only thing that is constant.”.
This certainly applies to national economies.

Output gaps in the business cycle

The output gap is the difference between actual output and potential output in the business cycle.
Potential output is what a nation could be producing if all of its resources were being used efficiently.
In the business cycle model, a nation’s potential output at any given time is represented as the long-run growth trend.

Overview

In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle.
Topics include the four phases of the business cycle and the relationship between key macroeconomic indicators at different phases of the business cycle.

Phases and turning points of the business cycle

The typical business cycle has four phases, which progress as follows:

Potential output in the business cycle

Potential output is also called full-employment output.
Potential output is the level of real GDP that would be produced if all resources are used efficiently.
For example, if labor is used efficiently, the actual rate of unemployment will be equal to the natural rate of unemployment.
When there is a positive output gap, an economy is producing beyond its long-run potential and the unemployment rate will be lower than the NRU.
During a recession, real GDP falls below its potential and the unemployment rate is higher than the NRU.

The business cycle

The business cycle model shows how a nation’s real GDP fluctuates over time, going through phases as aggregate output increases and decreases.
Over the long-run, the business cycle shows a steady increase in potential output in a growing economy.

The production possibilities curve (PPC)

Fluctuations experienced in the business cycle can also be illustrated using the production possibilities curve (PPC), as in Figure 2.