The document discusses the business cycle, which refers to alternating periods of economic expansion and contraction. It identifies key phases like booms, busts, peaks and troughs. It then examines various causes of economic fluctuations, such as changes in consumption, inventories, government spending, expectations, interest rates, and supply shocks. Finally, it outlines different indicators that are used to forecast business cycles, including leading, coincidental, and lagging indicators.

1. BUSINESS CYCLE
Introduction to Economics
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2. Business Cycle
•Economic fluctuations: alternating periods of
economic expansion and contraction
 Boom, expansion
 Bust, contraction,
slump, recession
 Peak vs. trough
 Depression
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4. Causes of Fluctuations
• Changes in consumption
 Largest component of AE
• Changes in inventories
 Most volatile
• Innovations
 More investment
• Changes in government spending and taxation
 Political business cycle
• Expectations
 Affect households (C) and firms (I)
• Changes in the interest rate
• Supply shocks
 Real business cycle 4

5. Forecasting Business Cycles
1. Leading indicators
• Stock prices
• Orders of durable goods
• Number of building permits and housing starts
• Length of the average workweek
• Business formation
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6. Forecasting Business Cycles
2. Coincidental indicators
• GDP
• Employment
• Business profits
• Industrial production
3. Lagging indicators
• Inventories
• Personal income
• Labour costs
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