Is defined as diffusion of

fluctuations in aggregate
economic activities all over
the economy and not just on
single industries
 Peak/Prosperity
-This is a phase wherein business
activities are in their temporary maximum
-Full employment
-Output is at its full capacity
-There is a tendency for the price level
to rise
Recession
- Characterized by decline
total output, income, trade, and
ultimately unemployment
Trough/Depression
-Turning point of recession,
or economic is at its lowest
-Unemployment is so severe
Expansion
- Recovery in the economy
wherein income, output, trade,
interest rate, wage, and
employment are rising, meaning
unemployment is low.
Endogenous Theories
-Explain the causes if business
cycles within rather than outside
the economy

Exogenous Theories
-These theories explain the
causes of business cycles as
disturbances outside the economy
1. Real Structural Hypothesis
- Aggresive investment plans,
together with import
dependence, attain a normal
frontier in the weak
(structural) ability to bring in
foreign exchange.
2. Innovation Theory
- Ideas put forward by Joseph
Schumpeter
- Innovation is a fundamental cause of
business cycle
- Enhancement of an existing production
system that leads to new and better
products
3. Self Generating Theory
- According to Wesley
Mitchell, one phase of the
business cycle grows out of the
preceding phase.
4. Under consumption Theory
- Economist subscribing to
the under consumption view
attribute the deficiency in
purchasing power.
5. Monetary Theory
- If inflation is threatening
the economy, the central bank
(CB) should slow the rate of
growth of money supply.
 UNEMPLOYED
is officially defined as all of those who
are 15 years old as of their last birthday and
during the reference period, and are
reported as:
1. Without work, had no job or business
2. Currently available for work
3. Seeking work
 Isthe proportion in percent of the total
number of unemployed person to the total
persons in the labor force.

UNEMPLOYED
 Unemployment rate = x100
Labor force
 Laborforce
includes all persons 15 years old and
above as of their last birthday who
contribute to the production of goods and
services whether employed or unemployed

 Labor Force = Employed at unemployed

 1.UNAVOIDABLE UNEMPLOYMENT
A. FRICTIONAL UNEMPLOYMENT
It is temporary unemployment
associated with the changes in the economy.
It happens for a number of reasons. Some
new entrants take time to find jobs, some
quit their jobs to look for something better,
temporary disturbance (whether, shutdown,
renovation).
 1.
UNAVOIDABLE UNEMPLOYMENT
B. STRUCTURAL UNEMPLOYMENT
It occurs when the location and
qualifications of the labor force do not
match the available jobs.
 1.UNAVOIDABLE UNEMPLOYMENT
C. CYCLICAL UNEMPLOYMENT
Unemployment caused by the
recession phase of the business cycle. It is
caused by inadequate total spending. As
overall demand for goods and services
decreases, unemployment rises.
 2.AVOIDABLE UNEMPLOYMENT
This refers to unemployment usually
associated with insufficient demand for
workers caused by many factors such as poor
performance of the economy.
 Full employment does not mean that
unemployment rate is 0%. The full
employment is unavoidable unemployment or
if cyclical unemployment is zero.
 Also called as the natural rate of
unemployment.
 There are persons who are already employed
but they express the desire to have
additional hours of work in their present job
or in an additional job, or to have a new job
with longer working hours.
 If the person already worked for 40 hours but
still want additional hours of work.
 If
the person worked less than 40 hours per
week and wanted additional hours of work.
- Developed by Arthur Okun
- He concluded that for every 2-3% movement
in GDP, unemployment changes by 1% in both
opposite directions.
 Itrefers to the rate of increase in the
average prices of goods and services typically
purchased by consumers.

 Inflation Rate = CPI current – CPI previous

 CPI PREVIOUS X100
 Iscalculated as the change in the weighted
overall average prices of all goods and
services in the CPI basket.
 Analternative measure of inflation that is
calculated as the rate of change in the CPI
that excludes the items that have transitory
effects on the CPI.
 DEMAND PULL INFLATION
- characterized by “too much spending
chasing too few goods”.
- higher demand compared to the
available supply of goods and services.
Excess demand pulls the general price level.
 SUPPLY SHOCKS TO INFLATION
Shortage in supply and increases in the
cost of production without a corresponding
expansion in output.
Examples of these are bad weather,
natural calamities, disasters
 PROFIT-PUSH INFLATION
These are pressures on inflation resulting
to higher markups by businesses.
 The effects of inflation are redistributed to
different individuals, and as such, there will
be gainers and losers of inflation.
1. FIXED INCOME EARNERS
2. SAVERS
3. CREDITORS
4. HOLDERS OF SECURITIES
1. DEBTORS
2. FIXED ASSET OWNERS
3. PRODUCERS
 Isa sustained decrease in the average price
level.
 Refersto a period of extremely high inflation
reaching 100,000% and above.
 The economy is experiencing increasing
inflation and unemployment at the same
.time