CH.

9: BUSINESS CYCLE

UNITED STATES richest country in the world

JOHN MYNARD KEYNES British economist who gave a solution to the American problem of economic
depression; considered as the father of modern economics

BUSINESS CYCLE refers to the fluctuations in the economy

UNEMPLOYMENT & INFLATION biggest economic problems of business cycles

EXOGENOUS THEORIES forces outside the economic system create the business cycle

ENDOGENOUS THEORIES forces within the economic system cause the fluctuations in the economy

AGGREGATE DEMAND is composed of household consumption, business investment, & government

expenditure

ECONOMIC EXPANSION is a situation which attracts more investments

INNOVATION is the application of an invention for commercial use

PROSPERITY is the peak of the business cycle; full employment & the national output is at full
capacity, or close to it

RECESSION both production & employment fall

DEPRESSION is the valley of the business cycle; both production & employment are at their lowest
levels; demand for goods & services are at its lowest point

RECOVERY both production & employment rise towards full employment

DISGUISED UNEMPLOYMENT is a situation where individuals are actually working but they do not
contribute to production

FRICTIONAL UNEMPLOYMENT is caused by interruptions in production for technical reasons, or when

workers are temporarily laid off due to renovation works; situation when workers left their jobs &
are looking for new ones

STRUCTURAL UNEMPLOYMENT a change in technology renders the skills & talents of some workers
obsolete

CYCLICAL UNEMPLOYMENT is caused by the fall of business activities in the economy

SEASONAL UNEMPLOYMENT during slack periods, many workers in farming & construction are laid
off

FULL EMPLOYMENT when there is an available job for every person who is willing & able to work
CLASSICAL THOERY OF UNEMPLOYMENT states that employment increases at lower wages

KEYNESIAN THEORY OF UNEMPLOYMENT modern theory of employment; states that employment is

determined by aggregate or total demand for goods & services

CAPITAL-INTENSIVE application of machines

INFLATION rising general level prices

DEMAND-PULL INFLATION occurs when demand for goods & services exceeds supply

COST-PUSH INFLATION an increase in the cost of production results to an increase in prices

PROFIT-PUSH cause of inflation

STRUCTURAL INFLATION explains that the inability of some sectors of our economy to respond
immediately to demand for goods & services

BINONDO CENTRAL BANK allegedly controlled the black market of dollars

AUTHORITARIANISM & CRONY CAPITALISM roots of the existing crisis as pointed out by the UP
Report

THEORIES OF BUSINESS CYCLES

1. Exogenous theories
2. Endogenous theories

EXAMPLES OF OUTSIDE FORCES (EXOGENOUS THEORIES)

1. War
2. Political developments
3. Natural disasters
4. Major innovations

EXAMPLES OF INSIDE FORCES (ENDOGENOUS THEORIES)

1. Accelerators
2. Multipliers
3. Innovations
4. Monetary policies

3 KINDS OF EXPENDITURE

1. Household consumption
2. Business investment
 3. Government expenditure

PHASES OF BUSINESS CYCLE

1. Prosperity
2. Recession
3. Depression
4. Recovery

CAUSES OF UNEMPLOYMENT

1. Changes in technology
2. Renovations
3. Business cycles
4. Seasons

TYPES OF UNEMPLOYMENT

1. Frictional unemployment
2. Structural unemployment
3. Cyclical unemployment
4. Seasonal unemployment

SEVERAL FACTORS OF UNEMPLOYMENT

1. Some people are sick

2. Many employees left their jobs because of dissatisfaction
3. Legal minimum wage is usually high
4. Because of old age or other personal handicaps

FULL EMPLOYMENT POLICIES

1. Shorter work week

2. Postponement of technological developments
3. Public investment

TYPES OF INFLATION

1. Demand-pull inflation
2. Cost-push inflation
3. Structural inflation

GOVERNMENT POLICIES

1. To increase the production of small-scale industries

2. To reduce over-supply of money
3. To reduce government expenditures
4. To concentrate more on the development of agricultural projects which are less expensive
5. To encourage more foreign investments to accelerate our economic recovery
6. To transform the people into more self-reliant & productive groups