CFA L1 / Econ / M2. Business Cycles
Module 2 · Economics

Business Cycles

EN: Phases of the cycle, schools of thought, key indicators (CPI), and unemployment measures.
VN: Các pha chu kỳ kinh tế, trường phái, CPI và chỉ tiêu thất nghiệp.

1. Four Phases of a Business Cycle Concept

About: Expansion → Peak → Contraction → Trough. Recession = ≥ 2 consecutive quarters of GDP contraction. Phase identification drives sector rotation and asset allocation calls.Tóm tắt: Mở rộng → Đỉnh → Suy giảm → Đáy. Recession = ≥ 2 quý GDP giảm liên tiếp. Pha quyết định xoay vòng ngành.
Time GDP Expansion Peak Contraction Trough
Four phases — recession is two consecutive quarters of contracting GDP.

Phases

  • Expansion GDP rising, unemployment falling, inflation rising.
  • Peak Top of the cycle — overheating, capacity strained.
  • Contraction GDP falling for ≥ 2 quarters = recession.
  • Trough Bottom — recovery begins.

2. Schools of Thought Concept

About: Different schools (Keynesian, Monetarist, Austrian, RBC, New Keynesian) disagree on what causes cycles and what policy should do about them. Affects how analysts interpret macro data.Tóm tắt: Các trường phái khác nhau về nguyên nhân chu kỳ và phản ứng chính sách. Ảnh hưởng cách diễn giải dữ liệu vĩ mô.

Brief comparison

  • Keynesian Cycles driven by AD shocks; advocate fiscal stimulus.
  • Monetarist Cycles driven by money-supply changes — control via stable money growth.
  • Austrian Cycles caused by misguided gov intervention and credit expansion.
  • Neoclassical / RBC Cycles driven by real (productivity, technology) shocks; markets self-correct.
  • New Keynesian Adds sticky prices/wages — markets slow to clear.

3. Consumer Price Index (CPI) Core

About: CPI tracks the cost of a fixed basket of consumer goods over time. Inflation = % change in CPI. Headline includes food/energy; core excludes them (less volatile, preferred by central banks).Tóm tắt: CPI theo dõi giỏ hàng cố định. Inflation = % thay đổi CPI. Core CPI loại food/energy — ít biến động, NHTW ưu tiên.
\[ CPI = \frac{\text{Cost of basket at current prices}}{\text{Cost of basket at base-year prices}} \times 100 \]

Inflation rate

  • Inflation \(\pi = \dfrac{CPI_t - CPI_{t-1}}{CPI_{t-1}}\)
  • Headline Includes food and energy.
  • Core Excludes food and energy (less volatile).
Practice problem

Basket cost: base year = $200, current year = $230. Compute CPI and inflation if base CPI = 100.

Show solution
CPI = (230/200)×100 = 115
Inflation = 15% from base
CPI = 115; cumulative inflation = 15%

4. Unemployment Rate Core

About: Unemployment rate = unemployed ÷ labor force. Three types: frictional (between jobs), structural (skills mismatch), cyclical (recession). Natural rate = frictional + structural.Tóm tắt: Tỷ lệ thất nghiệp = thất nghiệp / lực lượng lao động. 3 loại: ma sát, cấu trúc, chu kỳ. Tự nhiên = ma sát + cấu trúc.
\[ \text{Unemployment rate} = \frac{\text{Unemployed}}{\text{Labor force}} \times 100\% \]

Components

  • Labor force Employed + actively seeking work.
  • Frictional Between jobs (always > 0).
  • Structural Skills mismatch.
  • Cyclical Due to recession (zero at full employment).
  • Natural rate = Frictional + Structural.
Practice problem

Labor force = 160M, unemployed = 8M. Compute unemployment rate.

Show solution
Rate = 8/160
= 5%

Practice problem Practice

Practice problem

CPI moves from 250 to 260 over a year. Compute the inflation rate.

Show solution
\(\pi = (260 - 250) / 250\)
= 4.00% inflation