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Economic Fluctuations - Coggle Diagram
Economic Fluctuations
Aggregate expanditure
is defined as the current value of all the finished goods and services in the economy. The aggregate expenditure is thus the sum total of all the expenditures undertaken in the economy by the factors during a given time period.
Consumption
covers purchases of goods and services by individuals
everything from loaves of bread to cars to haircuts.
Consumption multiplier
The effects of a higher rate on aggregare expenditure are magnified by the consumption multiplier
Investment
Means purchases of physical capital, such as new factories, machines and houses
Goverment purchases
includes roads, military jets and the salaries of government workers
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Inflation
Expected inflation
In the monetary theory of inflation, money growth is the cause of inflation. Fluctuation in the rate of money growth is the primary cause of fluctuation in the rate of inflation
Rational expectations
The classical theory of asset prices assumes rational expectations about firms earning
Adaptive expectations
is a hypothesized process by which people form their expectations about what will happen in the future based on what has happened in the past.
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Unemployment rate
is the percentage of people in the labour force who are unemployed. Consequently, measuring the unemployment rate requires identifying who is in the labour force. The labour force includes people who are either employed or unemployed.
Unemployment fluctuations
In recessions, the abundance of new hires “congests” the jobs the unemployed fill, diminishes their marginal product and discourages further job creation.
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Potential Output
is the maximum amount of goods and services an economy can turn out when it is most efficient—that is, at full capacity. Often, potential output is referred to as the production capacity of the economy.
Output Fluctuations
means the difference between actual output and potential output. In other words, it is called the output gap.
The Phillips curve
flation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
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Supply shocks
Event that causes a major change which in turn causes a short-run change in the inflation rate
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Okun law
that an expanding economy, with a relatively stable labor force, creates new jobs and reduces its level of unemployment, but when an economy enters a recession unemployment rises, which in turn causes significant long-term depressive effects
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The business cycle
Business cycles are a type of fluctuation found in the aggregate economic activity of a nation a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions
Recessions
period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Countercyclical monetary
policy
Adjustments of the real interest rate by the central bank to offset expenditure shocks and thereby stabilize output
