(Lecture 6) Economic fluctuations and unemployment : definitions (…
(Lecture 6) Economic fluctuations and unemployment : definitions
Business cycle: :recycle: :
2.Output goes up and down depending on economic shocks.
3.Periods of booms are followed by recessions
4.Period from a boom, to recession, and back to boom = business cycle.
5.A business cycle typically lasts 6 to 10 years.
Employment cooperates positively with the business
cycle. When output is higher, employment is higher.
To the opposite, unemployment cooperates
negatively with the cycle. Unemployment is
The negative relationship between output growth
and change in the unemployment rate is known as
the Okun’s Law.
Output Gap :forbidden:
The difference between the trend level of output and actual output
:warning:GDP level = GDP trend + (GDP level – GDP trend) (GDP level – GDP trend) = Output Gap
:<3: Supply : ce qu'on te fournie, ce qu'on te distribue, ce qu'on met à ta disposition
:pencil2: Output : ce que la machine, la personne, ou l'entreprise produit
:silhouette: Input : contribution, ce qui est mise en place, opération
:check: Business cycle as measured by the output gap are fluctuations around this trend
:frowning_face: inflation : les prix augmentent et les pouvoirs d'achats diminuent.
Change in unemployment rate = c - d* % change in real output, with c>0 and d>0
Unemployment rate falls when output is increasing faster.
Example --- US : ≅ 0.40 => A 1% increase in output growth leads to 0.4% fall in unemployment rate.
Remark: Other expression for Okun’s Law :
Unemployment rate= c - d*(output gap) with c>0 and d>0
Unemployment rate falls if output gap increases.
Output gap = 0, unemployment rate = c = natural rate
In Spain and to a lesser extent in the U.S., the financial crisis destroyed more jobs than predicted by the Okun’s Law.