ECON 2133 1st Edition Lecture 1Outline of Last Lecture I. Macro-Economic Goals (1-3)Outline of Current Lecture II. Macro- Economic Goals (4 & 5) III.Business CycleA.Explanation/ DefinitionB.Timeline since 1900 of US Economy as Business Cycle Current LectureII. Macro- Economic Goals (continued)-4. Efficiency (allocating and productive)- Markets are allocating efficient - Perfectly competitive firms earn zero economic profit in long run and compelled to run at competitive outputs/ products- Use least cost combo of resources to produce by very design in nature- Living in world of scarcity let’s get the most out of the resources that we can-5. Equitable Distribution of income (NOT equal but fair/ just in deciding who gets what)- Government steps in to help, social safety net - Walk high wire of capitalism, some will fall and not do so good so government steps in to catch these people. - Ethical criteria in splitting up pie of income/ money- Problem since 1935 and Roosevelt’s “New Deal” ^ first social security, Medicaid/ Medicare, and now Obamacare - What matters is to not live in extremes III. Business CycleA. The Business Cycle: periods of economic growth above trend followed by “fits” and “spasms” if economic contraction below trend that repeat at an irregular interval Exponential or Linear Trend of economy?- Rule Number 3: Greed kills- Have Linear to have macroeconomic stability, a secular trend 1945-2010 = 2.5 to 3 % / year; 2014 finally peaked above 3% level which is historical average- We get above and below trend that repeats itself over and over again as an economy but irregularly Secular cycle has 4 phases:These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. Expansion (upward positive economic growth), last for an average of 59 months so roughly 5 years2. Peak (highest level of growth then begins to fall)3. Recession/ Contractions (economic activity is falling and economy is retracting), last for an average of 11 months4. Trough (lowest point of economic growth and starts looking up to expansion)JUST TO REPEAT ITSELF AGAIN Extrapolate: forecast for the future based on data How to avoid??Business cycle terms: 1. Amplitude: killer of dreams, bigger the amplitude the less economic stability, highs and lows of cycle swings. Goal is to minimize amplitude and it creates economic instability 2. Persistence/ periodicity: length of time for the cycle to return to trend after a disturbance. Minimize inevitable recessions, take a blow and get right back up there. Longer it takes the greater the forgone cost of economic production the longer it will take B. Business Cycle History since 196012/61 – 12/69 Second largest expansion ever for 106 months11/73- 11/77 OPEC Recession (quadrupled gas prices overnight)... Currently has 30% but used to have 70% of the market because other countries have found oil that took away strength of monopoly. 1979 Iranian Revolution that led to today’s world 07/81- 11/82 Disinflation Recession 07/90- 07/91 Gulf War Recession 03/91- 03/01 Largest expansion ever for 121 months03/01- 11/01 – Internet Recession (with 911) day of infamy for islamists on 9/11/1863 so the terrorists chose 9/11 with connection 12/07- 06/09 The Great RecessionPattern = increase world price of oil means automatic recession because it is subject to geopolitical events - OPEC losing power means less influence over oil price - Natural gas doesn’t cause this issue because it’s domestic, don’t export natural gas because congress doesn’t let us export it yet. - Iron and bronze age didn’t end because we ran out, oil age isn’t going to end because we will runout but just because we find something