The paper "Business Cycle, Fiscal Policy, and Other Questions" is a wonderful example of an assignment on macro and microeconomics. Inherent fluctuations in economic activity are what connote the business cycle in a broad term. Macroeconomics has a long tradition of measurements of business cycles and the founder of the National Bureau of Economic Research (NBER) Wesley Mitchell (1927) first provided a framework for the same. Both defined business cycles in terms of alterations between periods of recession and expansion, which are considered as two alternating phases of the cycle. In other words, economic activity's transitory fluctuations from a “ permanent trend” constitute these changes.
In this cycle recessions lead to transitory fluctuations in output that are negative; although the fluctuations might differ in magnitudes and shapes depending on the type of cycle involved. An asymmetric shape is closely linked to unemployment, a measure of economic slack, and capacity utilization. This holds true even when univariate analysis pertaining to the gross domestic product is used to measure the cycle. In the macroeconomic parlance, this is known as a model-averaged business cycle which involves univariate dynamics of the real GDP.
The level of capacity utilization and unemployment rate are considered as the two important variables of this cycle. These two variables are presumed to move as the business cycle moves but cannot be said to provide broad measures of real GDP's economic activity (Hamilton, 1989). Typically levels of unemployment, inventories, and plant utilization move along with the four phases of the business cycle which are peak, recession, trough, and expansion. The fluctuations entail economic shocks, a decrease in employment and output, and sticky downward prices.
Furthermore, unemployment creates clutter in the types of efforts the unemployed take, which includes individuals who are either searching jobs or looking to take jobs soon; individuals who are struck by structural unemployment problems involving changes in the demand for the workforce; and individuals who are struck by cyclical unemployment issues typified by the recession phase of the business cycle. Those hurt by the fluctuations include fixed-income receivers, savers, and creditors.
Aizenmann, J., and Jinerak, Y. (2010). “De Facto Fiscal Space and Fiscal Stimulus: Definition and Assessment.” Working Paper 16539, National Bureau of Economic Research, Cambridge, MA.
Bils, M., and Kahn, J.A. (1996). “What Inventory Behavior Tells Us about Business Cycles,” Rochester Center for Economic Research, Working Paper No. 428, September 1996.
Blinder, A.S. (1981). “Retail Inventory Behavior and Business Fluctuations,” Brookings Papers on Economic Activity, vol. 2, pp. 443–505.
Blanchard, O.J. (1983). “The Production and Inventory Behavior of the American Automobile Industry,” Journal of Political Economy, vol. 91, no. 3, pp. 365–400.
Carlin, W. (2012), “Real exchange rate adjustment, wage-setting institutions, and fiscal stabilization policy: Lessons of the Eurozone’s first decade”, CEPR Discussion Paper No. 8918.
Canuto, O., and Giugale, M. eds. (2010). The Day after Tomorrow: A Handbook on the Future of Economic Policy in the Developing World. Washington, DC: World Bank.
Debelle, G. (2012). ‘On Europe's Effects on Australian Financial Markets’, Address to Bloomberg Seminar, Sydney, 14 February 2012.
Frankel, J., Carlos, V., and Vuletin, G. (2011). “On Graduation from Procyclicality.” Working Paper 17619, National Bureau of Economic Research, Cambridge, MA.
Hamilton, J. D. (1989). ‘‘A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle,’’ Econometrica 57:2, 357–384.
IMF (International Monetary Fund). (2010a). “Emerging from the Global Crisis: Macroeconomic Challenges Facing Low-Income Countries.” October 5.
IMF (International Monetary Fund). (2010b). “How Did Emerging Markets Cope in the Crisis?” June 15.
Keynes, J.M. (1936), The General Theory of Employment, Interest and Money London: Macmillan.
Kose, M. Ayhan, and Prasad, E. (2010). Emerging Markets: Resilience and Growth amid Global Turmoil. Washington, DC: Brookings Institution Press.
Kontopoulos, Y., and Perotti. R. (1997). Fiscal fragmentation. Columbia University. Retrieved http://www.nber.org/chapters/c8024.pdf. Accessed October 17, 2012.
Lowe, P. (2012). The Forces Shaping the Economy Over 2012. Retrieved http://www.rba.gov.au/speeches/2012/sp-dg-160212.html. Accessed October 17, 2012.
Nguyen, D. (n.d). “Macroeconomic Policy in Australia”. Retrieved http://www.kewpid.net/notes/macro_reform.pdf. Accessed October 17, 2012.
Wesley, A.M. (1927). Business Cycles: The Problem and Its Setting. New York: National Bureau of Economic Research.
West, K.D. (1986). “A Variance Bounds Test of the Linear Quadratic Inventory Model,” Journal of Political Economy, vol. 94, no. 2, pp. 374–401.