ECON 102 Lecture Notes - Lecture 2: National Bureau Of Economic Research, Procyclical And Countercyclical, Business Cycle
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Document Summary
Born after great depression to explain business cycles. Robert lucas (1987) research suggested that welfare doesn"t improve much when you eliminate output fluctuations. Recession = 2 + consecutive quarters of negative gdp growth. During a recession trough, gdp reaches its lowest level before rising again. Expansion = 2+ consecutive quarters of positive gdp growth. During the peak of an expansion period, gdp reaches its maximum level before decline. Most volatile components of gdp = consumption, investment. Funds for consumption and investment channeled through financial intermediaries (eg. bank) 3/10 leading nber indicators related directly to financial markets. > stock prices (procyclical, volatile, not too accurate) Procyclical = rise during booms and falls during periods of economic weakness. 3/10 leading nber indicators are indirectly related to financial markets. Lucas" proposal : % increase in consumption is necessary to make a representative consumer different between non fluctuation consumption trend and consumption trend subject to business cycles.