Chapter 3: Business Cycles

In this section

• Measuring GDP and National Income
  A comprehensive exploration of how economists define, calculate, and interpret GDP, along with a discussion of national income and related measures for CFA candidates.
• Real vs. Nominal GDP
  Explore the crucial differences between real and nominal GDP, learn how analysts separate inflation effects from true output growth, and understand why real GDP is central to macroeconomic assessment and investment analysis.
• Aggregate Demand and Aggregate Supply Model
  A comprehensive exploration of how aggregate demand and aggregate supply interact to determine overall price levels and economic output, including key shifts and policy implications.
• Short-Run vs. Long-Run Aggregate Supply
  Explore the distinction between short-run and long-run aggregate supply (SRAS vs. LRAS), the factors driving each, and their critical role in business cycles and policy decisions.
• Phases of the Business Cycle
  Discover the four main phases of the business cycle—expansion, peak, contraction, and trough—along with their key drivers, real-world implications, and strategies for navigating cyclical fluctuations in asset allocation and investment decisions.
• Economic Indicators (Leading, Coincident, Lagging)
  Learn about critical economic indicators that guide macroeconomic analysis and investment decisions, focusing on distinguishing leading, coincident, and lagging measures for effective forecasting and portfolio management.
• Credit Cycles and the Role of Inventories
  Explore how credit cycles and inventory management amplify business cycle dynamics, including practical examples, diagrams, and real-world insights for CFA Level I candidates.
• Unemployment and Output Gaps
  A detailed exploration of how unemployment rates and output gaps interact, influencing business cycles, inflationary pressures, and policy decisions.
• Okun’s Law and Economic Growth
  Explore Okun’s Law, its implications for unemployment and GDP growth, and how this relationship guides economic policy and investment decisions.
• Hysteresis in Unemployment
  Explore how temporary economic shocks can lead to persistently high unemployment, influencing labor market dynamics, policy interventions, and long-term economic growth.
• Measuring Potential Output and Output Gap Approaches
  Learn advanced techniques to estimate potential GDP and gauge economic slack or overheating through output gap measures. Explore production functions, statistical filters, and structural methods for precise macroeconomic analysis and policy decisions.
• Labor Market Dynamics (Frictional, Structural, Cyclical Unemployment)
  A thorough exploration of frictional, structural, and cyclical unemployment, highlighting root causes, measurement techniques, policy solutions, and connections to business cycle analysis.