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AMU ECON 201 - Short-Term Economic Fluctuations: An Introduction
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1Short-TermEconomic Fluctuations: An IntroductionShort-TermEconomic Fluctuations: An IntroductionPrinciples of Macroeconomics Dr. Gabriel X. MartinezAve Maria UniversityChapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 22Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Posted: 02/01/2001 12:24 amPosted: 02/01/2001 12:24 amLast Updated: 2001Last Updated: 2001--0202--01 10:49:5401 10:49:54--0505The Federal Reserve has cut interest The Federal Reserve has cut interest rates for the second time this month. rates for the second time this month. With so many area businesses With so many area businesses closing, closing, MichianaMichianaresidents worry it residents worry it may be too late to save the economy may be too late to save the economy from slipping into recession. from slipping into recession. Mark Mark EagenEagen, the president and CEO , the president and CEO of St. Joseph County's chamber of of St. Joseph County's chamber of commerce, is watching commerce, is watching Michiana'sMichiana'seconomy closely and says it is slowing economy closely and says it is slowing down. While consumer spending has down. While consumer spending has obviously decreased, companies are obviously decreased, companies are feeling the effect. feeling the effect. Closed in South Bend, February 2001Chapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 33Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Local effectsLocal effectsPlant closings like Bayer in Plant closings like Bayer in Elkhart, bankruptcies like OMC Elkhart, bankruptcies like OMC Boats in Syracuse, along with Boats in Syracuse, along with the shutdown of Montgomery the shutdown of Montgomery Ward, L.S. Ayers and Ward, L.S. Ayers and Thermoplastics, as well as the Thermoplastics, as well as the downsizing of Whirlpool have all downsizing of Whirlpool have all taken a major toll on the area.taken a major toll on the area.Closed in South Bend, February 2001Chapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 44Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. According to Tyler Glynn of Edwards Jones According to Tyler Glynn of Edwards Jones Investments, Investments, ““We feel a recession, or the We feel a recession, or the effects of a possible oncoming of a recession, effects of a possible oncoming of a recession, more than other parts of the country because more than other parts of the country because we have so much of a base in manufacturing.we have so much of a base in manufacturing.””Ray of hopeRay of hopeWhile all the closings have left many people While all the closings have left many people jobless, a ray of hope is on the horizon. AMjobless, a ray of hope is on the horizon. AM--General, an auto plant opening in Mishawaka, General, an auto plant opening in Mishawaka, will manufacture a new generation of the will manufacture a new generation of the Hummer 4Hummer 4--wheel drive sport utility. The wheel drive sport utility. The additional 1500 jobs should make up for the additional 1500 jobs should make up for the recent loss in recent loss in MichianaMichiana, but experts continue , but experts continue to watch the economy closely. to watch the economy closely. Closed in South Bend, February 2001Chapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 55Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Recessions and ExpansionsRecessions and ExpansionsRecession (or contraction)Recession (or contraction)A period in which the economy is growing at a rate A period in which the economy is growing at a rate significantly below normalsignificantly below normalThe NBER does not define a recession in terms of two The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread recession is a significant decline in economic activity spread across the economy, lasting more than a few months, across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, normally visible in real GDP, real income, employment, industrial production, and wholesaleindustrial production, and wholesale--retail sales.retail sales.••For more information, see the latest announcement on how the For more information, see the latest announcement on how the NBER'sNBER'sBusiness Cycle Dating Committee chooses turning Business Cycle Dating Committee chooses turning points in the Economy and its latest memo, dated 07/17/03. points in the Economy and its latest memo, dated 07/17/03. DepressionDepressionA particularly severe or protracted recessionA particularly severe or protracted recessionChapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 66Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Fluctuations in U.S.Fluctuations in U.S.Real GDP, 1920Real GDP, 1920--200120012Chapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 77Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Figure 2. Real Personal Income Less TransfersThe dark line shows the movement of income from May 2000 to the present and the shaded line the average over the previous 6 recessions. Source: Bureau of Economic Analysis, U.S. Department of Commerce Source: The Conference Board (http://www.globalindicators.org)Chapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 88Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Figure 3. Payroll EmploymentThe dark line shows the movement of employment from May 2000 to the present and the shaded line the average over the previous 6 recessions. Source: Bureau of Labor Statistics, U.S. Department of LaborChapter 25: ShortChapter 25: Short--Term Economic Term Economic Fluctuations: An IntroductionFluctuations: An Introduction 99Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved. Peak date


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AMU ECON 201 - Short-Term Economic Fluctuations: An Introduction

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