Click HERE to read the notes

The economic growth path is not smooth. It goes through an expansion phase, reaches a peak, starts a contraction phase and drops to a trough. Then the cycle is repeated. These ups and downs are referred to as business cycles. Each phase of the business cycle has certain characteristics. In this part we will look at the ups and downs of an economy and the characteristics of each phase of the cycle. We also examine different explanations that are offered for the occurrence of the business cycles.

Leading Economic Indicators

Click HERE to read the notes

Economists know that business cycles occur. But it is more difficult to know when they occur and how significant the ups and downs will be. However, there are some measures that economists watch for and when most of these measure move up or down they signal the coming of a boom or a bust in the economy. The measures are referred to as the leading economic indicators and the index based on these measures is called the index of leading economic indicators. We will briefly review the leading economic indicators and their reliability in predicting the state of the economy in the near future.

Check the following site for more information: http://www.conference-board.org

Macroeconomic Equilibrium

Click HERE to read the notes

In the market for an individual product, supply and demand determine the equilibrium price and quantity of the product. Similarly, in the economy at large, total demand for goods and services and total supply of goods and services provide the equilibrium price and quantity for the entire economy. When dealing with the whole economy, the price is the average price level, and the quantity is the total production, as represented by the real GDP and total demand for all new goods and services produced in the economy. When the amount that would be produced (aggregate supply) and the amount that would be purchased (aggregate demand) are equal, we have macroeconomic equilibrium.