5.1 Introduction: Some Facts about Economic Fluctuations
Modern economies undergo significant short-run variations in aggregate output and employment. For instance, from the 4th quarter of 2007 to the second quarter of 2009, real GDP fell 3.8%, the fraction of the adult pop. employed fell by 3.1 percentage points, and the unemployment rate rose from 4.8 to 9.3%. In contrast, over the 5 previous years, GDP rose at an average annual rate of 2.9%.
Understanding the causes of aggregate fluctuations is a central goal of macroeconomics. A first important fact about fluctuations is that they do not exhibit any simple cyclical pattern. The times between one recession and the next range from 4 quarters to almost 10yrs. Where the major macroeconomic schools of thought differ is in their hypotheses concerning these shocks and propagation mechanisms.