20.1 Three Key Factors about Economic Fluctuations

20.1 a. Fact 1: Economic Fluctuations are Irregular and Unpredictable

Although economic fluctuations are often termed the business cycle, the term ‘business cycle’ is misleading because it suggests that economic fluctuations follow a regular, predictable pattern. In reality, economic fluctuations are irregular and unpredictable [1].

Example: In the US, economic recessions do not come at regular intervals.

^{Recession [2]}

20.1 b. Fact 2: Most Macroeconomic Quantities Fluctuate Together

Although real GDP is usually used to monitor short-run changes in the economy, it really doesn’t matter which measure of economic activity is used because most macroeconomic variables that measure income, spending or production move in the same direction, though by different amounts [1].

Example: Investment is one type of expenditure that is particularly volatile across the business cycle [1].

^{Business Cycle [3]}

20.1 c. Fact 3: As Output Falls, Unemployment Rises

When real GDP declines, the rate of unemployment rises because when firms produce fewer goods and services, they lay off workers [1].

Example: The unemployment rate peaked at 10.0 percent at the end of the 2007 – 2009 recession.

^{Unemployment During Recession [5]}