Lecture 9
Business cycles
Defintions:
- Burns & Mitchell:
o “… a type of fluctuation found in the aggregate economic activity of
nations that organise their work mainly into business enterprises: a cycle
consists of expansions occurring at about the same time in many
economic activities, followed by similarly general recessions, contractions
and revivals which merge into the expansion phase of the next cycle: this
sequence of changes is recurrent but not periodic: in duration business
cycles may vary from more than one year to 10 or 12 years.”
o Business cycles → monitor economic activity
▪ Recurrent → everythin that goes up will come down at some point
▪ Not in a fixed period → vary in duration according to the prevailing
economic circumstances
o Fluctuations in the level of economic activity consisting of:
▪ Peaks
▪ Troughs
▪ Recoveries/upswings
▪ Downswings
ECONOMIC
ACTIVITY
- One complete business cycle → the time between 2 peaks OR the time between
2 troughs
o Peak → upper turning point
o Trough → lower turning points
o Upswing → recovery, expansions, boom
o Downswing → Contraction, slump
NOTE! Be careful not to use the word “recession” to describe a downswing. It is not a
recession by defintion
Notes can only be purchased through the following details:
or 0829369077 1
, Important methodology and definitions:
- Business cycle is not just depicting fluctuation in GDP
o Business cycle → represented by an abstract cycle comprising a large set
of different indicators → used to depict changes in economic activity (this
is a reference cycle)
o Business cycle = full cycle in aggregate economic activity
- Reference cycle → abtraction of business cycle that depicts changes in
economic actitity.
o Uses full set of data (multiple individual series) describing economic activity
▪ Not just GDP movements → GDP consists of many components and
individual time series. Each of these series may have different turning
point.
- Specific cycle
o Cyclical trends in individual series
- Example → Y = C + I + G + NX
o Specific cycles = separate trends in Y, C, I, G & NX
o Reference cycle = combination of seasonally adjusted trends in specific
cycles
- Cycles pertaining to policy:
o Procyclical
▪ Individual series / policy moves with the business (reference) cycle
▪ Ensures that economic activity in upswings is spurred on and
stimulated → to achive higher upswings
▪ Procyclical Fiscal Policy → increase G and decrease T during booms
o Countercyclical
▪ Individual series / policy moves against the business (reference)
cycle
▪ Ensure that during downswings the deep downturn is mitigated
through policy changes
▪ Countercyclical Fiscal Policy → increase G and decrease T during
recessions
o Acyclical
▪ No correlation with the business cycle
Notes can only be purchased through the following details:
or 0829369077 2
Business cycles
Defintions:
- Burns & Mitchell:
o “… a type of fluctuation found in the aggregate economic activity of
nations that organise their work mainly into business enterprises: a cycle
consists of expansions occurring at about the same time in many
economic activities, followed by similarly general recessions, contractions
and revivals which merge into the expansion phase of the next cycle: this
sequence of changes is recurrent but not periodic: in duration business
cycles may vary from more than one year to 10 or 12 years.”
o Business cycles → monitor economic activity
▪ Recurrent → everythin that goes up will come down at some point
▪ Not in a fixed period → vary in duration according to the prevailing
economic circumstances
o Fluctuations in the level of economic activity consisting of:
▪ Peaks
▪ Troughs
▪ Recoveries/upswings
▪ Downswings
ECONOMIC
ACTIVITY
- One complete business cycle → the time between 2 peaks OR the time between
2 troughs
o Peak → upper turning point
o Trough → lower turning points
o Upswing → recovery, expansions, boom
o Downswing → Contraction, slump
NOTE! Be careful not to use the word “recession” to describe a downswing. It is not a
recession by defintion
Notes can only be purchased through the following details:
or 0829369077 1
, Important methodology and definitions:
- Business cycle is not just depicting fluctuation in GDP
o Business cycle → represented by an abstract cycle comprising a large set
of different indicators → used to depict changes in economic activity (this
is a reference cycle)
o Business cycle = full cycle in aggregate economic activity
- Reference cycle → abtraction of business cycle that depicts changes in
economic actitity.
o Uses full set of data (multiple individual series) describing economic activity
▪ Not just GDP movements → GDP consists of many components and
individual time series. Each of these series may have different turning
point.
- Specific cycle
o Cyclical trends in individual series
- Example → Y = C + I + G + NX
o Specific cycles = separate trends in Y, C, I, G & NX
o Reference cycle = combination of seasonally adjusted trends in specific
cycles
- Cycles pertaining to policy:
o Procyclical
▪ Individual series / policy moves with the business (reference) cycle
▪ Ensures that economic activity in upswings is spurred on and
stimulated → to achive higher upswings
▪ Procyclical Fiscal Policy → increase G and decrease T during booms
o Countercyclical
▪ Individual series / policy moves against the business (reference)
cycle
▪ Ensure that during downswings the deep downturn is mitigated
through policy changes
▪ Countercyclical Fiscal Policy → increase G and decrease T during
recessions
o Acyclical
▪ No correlation with the business cycle
Notes can only be purchased through the following details:
or 0829369077 2
