Economic History and the Business Cycle - Research Paper Example

Economic History and the Business Cycle Real Gross Domestic Product, (real GDP) otherwise known as per capita, measures the income per person in a country adjusted for inflation. It is an indication of the amount of resources that citizens of a country have on average that enables them to provide for their needs. It is evaluated using the GDP and the market prices of some base year. It gives a more accurate figure than nominal GDP as it accounts for the prices of commodities thus a better indicator to economic status of a country.

Historical data for real GDP, unemployment and Inflation for TurkeyFigure 1: Real GDPFigure 2: InflationFigure 3: UnemploymentRecession and ExpansionRecession is a term used in economic to refer to a period when there is a slowdown in economic activities of an economy. Recession is usually visible in GDP, house hold income, industrial production, employment, and wholesale/retail sales and profits. The macroeconomic indicators fall while bankruptcies and rate of unemployment increases. Recession starts just after the economic activities reaches at the peak and ends as the economy reaches its trough.

Between troughs and peak, the economy is said to be in an expansion. The expansion signifies a state of normalcy for an economy. This is a phase of business cycle which is characterized by general rise in economic activities. The gross product expands as jobs are created and incomes generally rise. The periods of recession and expansion occur in what is known as the business cycle.Historical recessions and expansions periods of real GDP in Turkey Turkey is a rapidly developing country and is an economic giant in Central and Eastern Europe.

Since the turn of the millennium, its economy has experienced periods of recession and expansion. After recovering from a period of recession ending in the year 2000, Turkey has generally experienced a strong economic growth since 2001, experiencing important gains in income and living standards effectively making it an upper-middle income country. From the year 2001 to 2008, Turkey’s GDP per capita increased from US $3057.8 to US $10379.5 respectively which marked period of economic growth as shown in figure 1.

This was followed by the trough of the recession in the year 2009. The period of expansion was experienced between the years 2010 to 2013 where GDP growth resulted into creation of more jobs thus reduced unemployment rate as illustrated in figure 3.Comparison of evolution of unemployment and inflation to GDP Generally an increase in GDP should signify an increase in economic growth of a country which should be characterized by creation of more jobs for the citizens and low inflation rates. However between the years 2001 and 2008, the rate of unemployment rises, contrary to the GDP indicator.

On the other hand, inflation falls between the years 2001 and 2007, while experiencing a sharp increase in 2008 despite the GDP still growing in that same year: in 2008 the prices of goods increased despite an increase in GDP, as shown in figure 2. In the subsequent years after 2008, inflation fluctuated while GDP increasing. As a result, the economy created more job opportunities for that period resulting in the significant reduction in unemployment: according to the World Bank data, Turkey created an estimated 4.

3 million jobs since the trough of the recession in 2009 as of the end of 2013.From the analysis of Turkey’ s real GDP, it can be deduced that growth in GDP per capita neither means creation of more jobs for the population nor a defined movement for the inflation curve. The real GDP shows a decrease during the recession before 2001 and during the year 2009 and yet it was assumed that the overall living standard of the average citizen improved during that period. The short term fluctuations in real GDP did not account for the improvement in the living standards since during this period the prices of goods were also fluctuating.

Therefore real GDP fails to account for the reported increase in living standards during such periods when countries experience short term fluctuations in GDP. Real GDP cannot fully account for the increased standards of living of citizens of a country as it fails to address several factors which affect the well-being of the citizens such as inequalities in income, levels of unemployment and environmental quality. Referenceshttp://databank.worldbank.org/data/home.aspx