Introducing Economic Fluctuations & Their Impact on Economy

This is a special lesson discussing economic fluctuations within an economy, and indicators measuring or predicting the onset of recessions. A well-researched module, the video includes US Business Cycle Expansions and Contractions. 

Learn about Okun’s law, an Empirical Observation. 

Okun’s Rule states that a 2% decrease in output for every 1% increase in unemployment (Abel and Bernanke, 2005) keeping other factors constant. Productivity is a major factor influencing the relationship between real GDP growth rate and unemployment rate. Varies according to countries based on their economic development. 

Understanding Economic Indicators 

Graph: The middle Road | Data Source University of Michigan 

To know more about the survey click here.

To know more about the base year click here.

Leading Indicators are variables that reach peak or trough before the turning points of a business cycle. They serve as excellent barometers for pointing out possibilities of recession. The yield spread between 10Y and 2Y Treasury note is one of the common tools used by economists. The lesson discusses an important concept of yield inversion. Another excellent index used in the United States is the University of Michigan Index of Consumer Sentiment, and Index of Consumer Expectations. The business Confidence Index by OECD is another indicator used commonly. 

Video: The middle Road 

Lagging Indicators

Turning points of these variables occur after the business cycle changes course.  Example, Real GDP; Inflation; Unemployment rate. Case Shiller Home Price Index. This is a famous indicator; home prices have a lag effect. 

S&P Case Shiller Home Price Indices 

S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPINSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPINSA, September 15, 2022. Monthly data, not seasonally adjusted. Index Jan 2000=100. The S&P CoreLogic Case-Shiller U.S. National Home Price Index (“the U.S. national index”) measures the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated monthly, according to Standard & Poors. 

Pioneered by Case Shiller Weiss’s research principals, Karl E. Case and Robert J. Shiller, S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is one of the most reliable indices to measure residential home prices in the US. The indices follow a repeat sales pricing index.

Co-Incident Variable: Reaches peaks and troughs at the same time.
Procyclical economic variable moves in the same direction while countercyclical economic variables move in the opposite direction.

Video : The middle Road 

The video includes a recap of the short and long-run economy and introduces the Aggregate Production Function. Previous on The middle Road, Aggregate Production Function was module 5, before a new system got implemented. However, the startup now focuses on lessons and Aggregate Production Function will be discussed ahead. Refer to the lesson Marginal Product of Labor under Applied Learning under Online Courses on The middle Road. 

Shocks to Aggregate Demand and Aggregate Supply 

YouTube: The middle Road 

Understand shocks to an economy with examples discussing shocks to aggregate demand and supply.  

An excellent reference is Understanding Macroeconomic Stability read on The middle Road.