econ quiz #2
kentucky79
Tucker.Ch16_LECTURE_SLIDES_EFT_9e.ppt*
Chapter 16
Business Cycles and Unemployment
Lecture Slides
Economics for Today
Irvin B. Tucker
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This chapter will answer these questions:
- How are cycles measured?
- What causes business cycles?
- What is unemployment?
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What is a
business cycle?
- Alternating periods of economic growth and contraction, which can be measured by changes in real GDP
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What are the four phases of a business cycle?
- Peak
- Recession
- Trough
- Expansion
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What is a peak?
- The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery
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What is a recession?
- A downturn in the business cycle during which real GDP declines, and the unemployment rate rises. Also called a contraction.
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How long before a downturn is a recession?
- As a general rule, at least two consecutive quarters in which real GDP declines
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When is a downturn considered a depression?
- The term depression is primarily an historical reference to the extremely deep and long recession of the early 1930s
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What is a trough?
- The phase of the business cycle in which real GDP reaches its minimum after falling during a recession
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What is a recovery?
- An upturn in the business cycle during which real GDP rises. Also called an expansion.
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Peak
Exhibit 1(a) Hypothetical Business Cycle
Peak
Recession
Expansion
Growth trend line
Trough
Real GDP per year
One business cycle
Time
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Exhibit 1(b) Actual Business Cycle
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
Trillions of 2009 dollars
2000 2001 2002 2003 2004 2005 2006 2007
One Business Cycle
Year
Peak
Trough
Peak
Expansion
Recession
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Exhibit 2 Severity of Post-World War II Recessions
13
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What is
economic growth?
- An expansion in national output measured by the annual percentage increase in a nation’s real GDP
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Why is growth an economic goal?
- It increases our standard of living - it creates a bigger “economic pie”
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Exhibit 3 A Historical Record of Business Cycles in the United States, 1929-2014
`29 `30 `35 `40 `45 `50 `55 `60 `65 `70 `75 `80 `85 `90 `95 `00 `05 `10 `15
20
15
10
5
3.5
0
-5
-10
-15
Year
Annual Real GDP Growth Rate
Annual real GDP growth
Long-term average growth
Zero growth
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Exhibit 4 An International Comparison of GDP Growth Rates, 2014
Real GDP growth rates (percent)
United States
Japan
Germany
China
United Kingdom
Russia
Greece
7.4%
5.6%
3.2%
2.4%
2.3%
1.4%
0.9%
--5.0%
India
Country
Canada
0.6%
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0.2%
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What are the three types of economic indicators?
- Leading
- Coincident
- Lagging
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What is a
leading indicator?
- Variables that change before real GDP changes
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Exhibit 5 Leading Indicators
Average workweek
Unemployment claims
New consumer goods orders
Delayed deliveries
New orders for plant and equipment
New building permits
Stock prices
Money supply
Interest rates
Consumer expectations
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What is a
coincident indicator?
- Variables that change at the same time that real GDP changes
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Exhibit 5 Coincident Indicators
Nonagricultural payrolls
Personal income minus transfer payments
Industrial production
Manufacturing and trade sales
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What is a
lagging indicator?
- Variables that change after real GDP changes
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Exhibit 5 Lagging Indicators
Unemployment rate
Duration of unemployment
Labor cost per unit of output
Consumer price index for services
Commercial and industrial loans
Commercial-credit-to-personal-income ratio
Prime rate
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Changes in total spending cause the business cycle
Economic Growth
Real GDP = C + I + G + (X-M)
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What is the unemployment rate?
- The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs
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How is the unemployment rate calculated?
- Each month, the Bureau of Labor Statistics (BLS) surveys 60,000 households at random
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What is the
civilian labor force?
- People 16 years or older who are either employed or actively seeking a job, excluding members of the armed forces, homemakers, and people in institutions
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Who is considered employed?
- Anyone who works at least one hour a week for pay or at least 15 hours per week as an unpaid worker in a family business
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Who is considered unemployed?
- Anyone who is 16 years of age and above who is actively seeking employment
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Who is a
discouraged worker?
- A person who wants to work, but who has given up searching for work
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Total Population age 16 and over
Not in Labor Force
Armed forces
Household workers
Students
Retirees
Persons with disabilities
Institutionalized persons
Discouraged workers
Civilian labor force
Employed
Employees
Self-employed
Unemployed
New entrants
Re-entrants
Lost last job
Quit last job
Laid off
Exhibit 6
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Unemployment rate
unemployed
civilian labor force
X 100
=
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Exhibit 6 Population, Employment, and Unemployment, 2014
Number of Persons (millions)
Total civilian population age
16 and over 247.9
Not in labor force -92.0
Civilian force 155.9
Employed 146.3
Unemployed 9.6
Civilian unemployment rate 6.2%
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Exhibit 7 The U.S. Unemployment Rate, 1929-2014
Year
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
25
20
15
10
5
0
U.S. Unemployment Rate (percent)
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Exhibit 8 Unemployment Rates for Selected Nations, 2014
Unemploy-ment rate (percent)
China
South Africa
Canada
United States
25.8%
5.3%
3.7%
25.2%
7.0%
6.3%
6.2%
4.8%
4.1%
Japan
Country
Mexico
United Kingdom
Germany
Greece
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What are criticisms of the unemployment rate?
- Does not include discouraged workers
- Includes part-time workers
- Does not measure underemployment
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What is underemployment?
- People working at jobs below their level of skills
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What are the types of unemployment?
- Frictional
- Structural
- Cyclical
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What is frictional unemployment?
- Normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force, or seasonally unemployed
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What is structural unemployment?
- A mismatch of the skills of workers out of work and the skills required for existing job opportunities
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What is the difference between outsourcing and offshoring?
- Outsourcing is the practice of a company having its work done by another company in another country
- Offshoring occurs when a U.S. company hires employees from another country to perform jobs once done by the company’s American employees
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What is cyclical unemployment?
- Unemployment caused by the lack of jobs during a recession
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What is
full employment?
- When an economy operates at an unemployment rate equal to the sum of frictional and structural unemployment rates. Also called the natural rate of unemployment.
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What rate is considered full employment?
- The natural rate of unemployment changes over time, but today it is considered to be about 5 percent
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What is the GDP gap?
- The difference between actual real and full-employment real GDP
GDP = actual real GDP – potential real GDP
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What is the
cost of cyclical unemployment?
- The GDP gap
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Exhibit 9 Actual and Potential GDP, 1998-2014
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Conclusion?
- The gap between actual and potential real GDP measures the monetary losses of real goods and services when at less than full employment
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Exhibit 10 Civilian Unemployment Rates by Selected Demographic Groups, 2014
Demographic Group
Unemployment Rate (percent)
Overall 6.2%
Sex
Male 5.7
Female 4.9
Race
White 4.6
Hispanics 6.4
African American 10.2
Teenagers (16-19 years old)
All 14.9
White 12.3
Hispanics 16.6
African American 30.6
Education
Less than high school diploma 9.1
High school graduates 5.3
Bachelor’s degree or higher 2.7
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