Business Cycles: Teaching Hand-Out
Simone Moriconi*
September 2, 2024
For this course we have developed a customized textbook. Part A will cover chapters 1-4
of the customized textbook, which are drawn from Begg & Ward, Economics for Business,
McGraw Hill 6th edition (Ch. 9-12).
Session 2: Business Cycles & Macroeconomic Uncertainty
Compulsory background reading for this session is Chapter 1 of the customized textbook. This
is available on MyCourses. Please read it carefully in advance i.e. before coming to class.
The session is split in three parts:
I Questions for Review. This part will last approximately 25 minutes and is devoted to
collective discussion / brainstorming on a set of questions moderated by the instructor.
This discussion will be based on your own understanding of the background readings for
this session. They may also recall the on-line contents you studied for Session 1.
II Case study. This part will last approximately 85 minutes. The instructor will form
eight groups of 5-8 students each, depending on class size. Groups will spend the first
40 minutes to work on the preparation of the activity listed in the hand-out. The remain-
ing 45 minutes of the session will be devoted to presentations and collective discussions
moderated by the instructor.
III True False Statements and Multiple Choice Questions. This can take up to 10 minutes.
Assessment: “Continuous Assessment” (10% of the final grade) of everything done in
class; “Case Study” (20% of the final grade) in Session #2; “Presentation” (20% of
the final grade) in Sessions #4 and #5.
* FullProfessor of Economics, Department of Economics and Quantitative Methods, Ieseg School of Man-
agement E-mail: [Link]@[Link]
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Part I. Questions for Review
Please answer the questions below:
1. How do we define a business cycle?
2. Present the basic Keynesian Aggregate Demand model, and explain the rationale for this
model to provide a simplified framework to forecast movements in the economy and the
business cycle
3. Explain what is meant by the term “leading indicator:” What do we need leading in-
dicators for? What is the difference with a “lagging” indicator? Can you make any
example(s)?
Part II. Case Study: Macroeconomic Policies During Business Cycles
The NBER is the most widely accepted arbiter of recessions and recoveries in the US business
cycle starting from the late 19th century. Table 1 reports the dates and durations of the last
eight US business cycles (measured from P1 to P2). These are drawn from the NBER Business
Cycles website. The table associates each group to a specific Business Cycle (BC). Each group
will take about 40 minutes to perform an in-depth study of the business cycle and present
results of its research to the rest of the class. Please follow the guidelines below:
Please identify the BC that will be object of your investigation, and use FRED Economic
Data to carry out your research.
Access the section “FRED Economic Data”. Here you will see a number of relevant time
series (e.g. inflation, unemployment rates, interest rates and other leading indicators) for
the US (and other economies).
Use the FRED on-line tools to construct time series plot and relate to specific recession
times (which can be dark shaded). You can then download the graph in pdf/jpg format.
See more below on the exact graphs you will have to produce.
Collaborate actively on the case study. It is important that you all gain the same knowl-
edge on all contents encountered in this part. The instructor is always available to provide
clarification. Make sure you actively work in your group. Do not get distracted, and do
not interact with students in different groups.
Presentations of the results of your research will take place during the last 45 minutes
of the class. This will allow us to gain an overview over the trends of macroeconomic policies,
and their relations with the US business cycle history.
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On MyCourses you can find an example of how the presentation should look like. This
refers to business cycle 1 in Table 1. Please use this as a template for your slides.
Each presentation will include one final slide where each group explains (i) how the group
worked on the assignment, and (ii) whether and how Artificial Intelligence has been used
in the analysis.
One student only will present the work. The instructor will choose the student
at the moment of the presentation. She/he will have up to 5 minutes to present
findings of own group.
BC no./ Group no. Peak 1 (P1) Trough (T) Peak 2 (P2) P1-to-T T-to-P2
(months) (months)
(example) 04/1960 02/1961 12/1969 10 106
1 12/1969 11/1970 11/1973 11 36
2 11/1973 03/1975 01/1980 16 58
3 01/1980 07/1980 07/1981 6 12
4 07/1981 11/1982 07/1990 16 92
5 07/1990 03/1991 03/2001 8 120
6 03/2001 11/2001 12/2007 8 73
7 12/2007 06/2009 02/2020 18 128
8 02/2020 04/2020 ... 2 ...
Table 1: Last US business cycles
To develop the case study, please address the following points:
1. Construct a time series for US inflation and unemployment. How does inflation
behave in the contour of the start of the economic recession your group is analyzing (i.e.
the move from Peak 1 to the Trough)? What is the relationship between unemployment
and inflation? Why?
Note From the website you can draw many different indicators of inflation (e.g. 10-year
Breakeven Inflation Rate, 5-year Breakeven Inflation Rate, Inflation, consumer prices
for the US). Select one that covers the time frame of your cycle.
2. Can you provide/find some information on any external shock of the recession that you
are studying?
3. Can your relate the behavior of inflation to some specific macroeconomic policy? Feel
free to build your arguments on courses’ contents (e.g. on-line videos Session 1). For
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older business cycles you can refer to Eckstein and Sinai (1986) and the review by Harvey
(2010). Both are available on MyCourses.
4. Include in the same graph a plot for a yield curve indicator. What information can you
draw from observing the yield curve?
Note From the website you can draw many different indicators of yield curve (e.g. 10-year
minus 2-year Treasury). Select one that covers the time frame of your cycle.
Part III. True False Statements and Multiple Choice Questions
Please state whether the statements below are True or False.
A - Multiple Choice Quizzes
a Savings provide an injection into the circular flow of income.
b Total expenditure in an economy is equal to consumption, investment, government spend-
ing and net exports.
c Under complete wage adjustment, aggregate supply is unresponsive to a change in infla-
tion.
d Higher inflation will lead central banks to increase interest rates. This explains a negative
relationship between inflation and aggregate demand
e The main injections into the circular flow of income are investment and government
spending.
f Diversifying macroeconomic risk through normal and inferior products is beneficial for
shareholders.
B - True-False Statements
Find below a set of multiple choice questions. Select what you believe is the correct answer.
There is only one correct answer per question.
GDP per capita is:
1. a measure of economic prosperity;
2. the only possible measure of economic prosperity;
3. a measure of economic inequality;
4. none of the above;
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Inflationary expectations:
1. tend to anticipate a strong deflation period;
2. tend to become self-fulfilling prophecies;
3. are totally disconnected from actual inflation outcomes;
4. none of the above;
A trade deficit is
1. troublesome in the short run but acceptable in the long run;
2. troblesome both in the short and the long run;
3. acceptable both in the short and the long run;
4. acceptable in the short run, but is troublesome in the long run.
In the AD-AS framework, a large outward shift in the AD induces
1. cost-push inflation;
2. deflation;
3. a reduction of GDP;
4. demand-pull inflation.
What of the following items does not belong to the UK’s Industrial Strategy and Grand
Challenges?, launched by the UK government in 2017
1. Develop artificial Intelligence
2. Meet the needs of an ageing Society
3. Sustainable development and clean growth
4. Exiting the European Union to afford better domestic healthcare
Learning assessment: If time allows, the learning outcomes of the session can be checked
against the learning objectives stated on MyCourses.
End of session.
