Measurement of Business Cycle by NBER:

(1) Quarterly GDP growth rates

(2) Employment

(3) Real Personal Income

(4) Industrial Production

(5) Retail Sales

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy lasting more than a few months. It is visible in real GDP, real income, employment, industrial production and wholesale retail sales.

Most recessions started when there was positive employment growth. NBER defines the start of a recession as an economic peak, that’s why.

Management of the Business Cycle:

The Government uses Fiscal Policy to influence the economy: expansiory fiscal policy is used when they want to end a recession.

The Central Bank uses Monetary policy: it lowers interest rates to end a contraction which is named “expansionary monetary policy”.

The CB raises rates to manage an expansion. We call it a contractory monetary policy.

3 factors to the Business Cylce:

(1) Supply and Demand

(2) Availability of Capital

(3) Consumer Confidence

Duration of Business Cycles:

Longest cycle from trough to peak: 120 months (1991 – 2001)

Shortest cycle from trough to peak: 12 months(1913 – 1914)

Average cycle from trough to peak: 39 months

Average cycle 1945 – 2009: 58 months

Longest cycle from peak to trough: 65 months (1873 – 1879)

Shortest cycle from peak to trough: 6 months (1980 – 1980)

Average cycle from peak to trough: 18 months

Average cycle from 1945 – 2009: 11 months

Current Cycle from trough Jun 2009: 109 months

RISK ANALYSIS: