title moment

    PPT - BTC

    • Fluctuations in the growth of real output, consisting of alternative periods of expansion and contraction are called business cycles/economic fluctuations
      • also called economic cycle or trade cycle
    • plots real gdp on the vertical axis against time on the x axis such that the derivative is real GDP growth
      • real because we eliminate price level changes
    • we have peaks, troughs, expansions and contractions
      • make sure to draw a dotted long term growth trend

    Expansion

    • Occurs when there is a positive growth in real GDP, shown by parts of the curve that slope upward
    • During periods of real GDP growth, employment of resources increases, and the real price levels increase

    Peak

    • A peak represents the cycle's maximum real GDP and marks the end of the expansion
    • When the economy reaches a peak, employment of resources has risen substantially, and the general price level may be rising quite rapidly

    Contraction

    • Following the peak, the economy begins to experience falling real GDP shown by the downward sloping parts of the curve
    • If the contraction lasts six months (two quarters) or more, it is termed a recession, characterised by falling real GDP and growing unemployment of resources
    • Increases in the price level may slow down a lot, and it is even possible that prices in some sectors may begin to fall.

    Trough

    • Represents the cycle's minimum level of GDP, or the end of the contraction
    • There may now be widespread unemployment
    • A trough is followed by a new period of expansion/recovery, marking the beginning of a new cycle

    Nature of the cycles

    • Each cycle lasts several years, but we cannot generalise and there may be irregularity in duration and intensity
    • A trend overall is desirable
    • Large cyclic fluctuations are not desirable though
    • Can use BTC to
      • reduce intensity of expansions and contractions

    Indicators

    • An indicator is anything that can be used to predict future financial or economic trends
      • e.g. government data
    • Types are
      • Leading Indicators
        • signal future events - examples are new housing starts, money supply, M2, consumer confidence, share prices and bond yields
        • not always right!
      • Lagging Indicators
        • One that follows an event, confirming an economic event
        • UNEMPLOYMENT is the big one
        • The CPI is also good.
      • Coincident Indicators
        • occur approximately at the same time as the conditions they signify
        • PERSONAL INCOME is a good one but;
        • GDP is the best one.

    leading

    • share prices, bond yields and consumer and business sentiment
      lagging
    • unemployment and cpi
      coincident
    • personal income and gdp

    expansion, peak, contraction, trough
    in an expansion, economic activity and employment of resources is increasing, inflation is increasing and unemployment is decreasing
    in a peak, inflation is substantially high compared to the rest of the cycle, employment of resources is maximized and there is minimal unemployment
    in a contraction real gdp is falling, and if this persists for two quarters or more it is termed a recession. increases in price level will slow down and it is possible that some prices in some sectors may fall
    in a trough employment of resources is minimal, unemployment is relatively high and widespread, and this marks the start of a new cycle.