Intro to Business Fluctuations

MRUNIVERSITY
LEARN ECONOMICS, UNDERSTAND YOUR WORLD

PRINCIPLES OF ECONOMICS

BUSINESS FLUCTUATIONS

A country's prosperity
depends upon good institutions

and the fundamental factors
of production:

Human capital,

Physical capital,

and Ideas.

Economic growth, however,
it's not a smooth process.

An economy advances and recedes,
it rises and falls,

it booms and busts.

Real GDP in the United States,
for example,

it's grown at an average rate
of about 3.2 % per year

over the past 60 years.

But the economy didn't grow
at this rate every day,

or every month, or even every year.

We call the fluctuations
in real GDP

around its long-term trend
or normal growth rate,

Business Fluctuations.

Recessions are significant,
widespread declines

in real income and employment.

Declines in employment
and increases in unemployment --

they are one
of the most significant

economic and personal costs
of a recession.

More generally, during a recession

not only is labor unemployed,

a lot of land and capital

also become unemployed
or underused.

And when we see
a lot of unemployed resources,

that suggests
that resources are being wasted,

it suggests that the economy

is somehow operating
below it's potential.

We'd like to limit
that waste of resources.

We want everyone who wants a job
to be able to get a job.

We want labor and capital
fully employed

to produce a prosperous,
growing economy.

In the next set of videos,

we are going to develop
a model of business fluctuations

called the Aggregate Demand,
Aggregate Supply model.

First, we'll learn
the basics of the model.

Then, we'll use the model
to help us understand

how shocks can disturb an economy

and how policy
might help us to reduce

the size or cost
of business fluctuations.

Finally, we'll apply the model

to explain some of the largest
economic catastrophes in U.S. history,

including the Great Depression.

PRINCIPLES OF ECONOMICS

You're on your way
to mastering economics.

Make sure this video sticks
by taking a few practice questions.

Or, if you're ready
for more macroeconomics,

click for the next video.

Still here?

Check out
Marginal Revolution University's

other popular videos.