Upload
alicia-riley
View
213
Download
0
Tags:
Embed Size (px)
Citation preview
1
Chapter 12 Business Cycles
and Unemployment• Key Concepts• Summary• Practice Quiz
©2004 Thomson/South-Western
2
What is abusiness cycle?
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP
4
What is a peak?The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery
6
What is a trough?The phase of the business cycle in which real GDP reaches its minimum after falling during a recession
8
Hypothetical Business Cycle
Peak
Peak
Trough
Recession Recovery
Real GDPper year
Growth trend lin
e
9
How long before a downturn is a
recession?The Department of Commerce considers a recession to be at least two consecutive quarters in which GDP declines
10
When is a downturn considered a depression?
The term depression is primarily an historical reference to the extreme deep and long recession of the early 1930’s
11
What iseconomic growth?
An expansion in national output measured by the annual percentage increase in a nation’s real GDP
12
Why is economic growth one of our nation’s economic goals?
It increases our standard of living - it creates a bigger “economic pie”
15
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
17
Coincident Indicators
•Nonagricultural payrolls
•Personal income minus transfer payments
•Industrial Production
•Manufacturing and trade sales
19
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
20
What causes unemployment?
When total spending falls, businesses will find it profitable to produce a lower volume of goods and avoid unsold inventory
21
Who is considered unemployed?
Anyone who is 16 years of age and above who is actively seeking employment
22
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
23
What is the unemployment rate?The percentage of people in the labor force who are without jobs and are actively seeking jobs
26
What is thecivilian labor force?
People 16 years or older who are either employed or unemployed, excluding members of the armed forces and people in institutions
27
Total Population age 16 and over
Not in Labor ForceNot in Labor ForceArmed forces
Household workersStudentsRetirees
Disabled personsInstitutionalized
Discourage workers
Civilian labor forceCivilian labor forceEmployedEmployees
Self-employedUnemployedNew entrantsRe-entrantsLost last jobQuit last job
Laid off
28
Who is adiscouraged worker?A person who wants to work, but who has given up searching for work. He or she believes there will be no job offers
30
What are criticisms of the unemployment rate?• Does not include discouraged workers
• Includes part-time workers• Does not measure underemployment
33
What is seasonal unemployment?
Unemployment caused by recurring changes in hiring due to changes in weather conditions
34
What is frictional unemployment?
Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force
35
What is structural unemployment?
Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities
37
What isfull employment?
The situation in which an economy operates at an unemployment rate equal to the sum of the seasonal, frictional, and structural unemployment rates
38
What percent unemployment is
considered full employment?
The natural rate of unemployment changes over time, but today it is considered to be about 5%
39
What is the GDP gap?The GDP gap is the difference between full-employment real GDP and actual real GDP
42
Key Concepts• What is a business cycle?• What are the phases of a business cycle?• How long before a downturn is a recession?• What are the types of economic indicators?• What causes unemployment?• Who is considered unemployed?• Who is considered employed?• What is the unemployment rate?
43
Key Concepts cont.• What is the civilian labor force?• Who is a discouraged worker?• What is underemployment?• What are the types of unemployment?• What is full employment?• What percent unemployment is
considered full employment?• What is the cost of unemployment?
45
Business cycles are recurrent rises and falls in real GDP over a period of years. Business cycles vary greatly in duration and intensity. A cycle consists of four phases: peak, recession, trough and recovery.
46
The generally accepted theory today is that changes in the forces of demand and supply cause business cycles.
47
A recession is officially defined as at least two consecutive quarters of real GDP decline. A trough is the turning point in national output between recession and recovery. During a recovery, there is an upturn in the business cycle during which real GDP rises.
48
Hypothetical Business Cycle
Peak
Peak
Trough
Recession Recovery
Growth trend lin
eReal GDPper year
49
Economic growth is measured by the annual percentage change I real GDP in a nation. The long-term annual average growth rate in the United States is 3 percent.
50
Leading, coincident, and lagging indicators are economic variables that change before, at the same time as, and after changes in real GDP, respectively.
51
The unemployment rate is the ratio of the number of unemployed to the number in the labor force multiplied by 100. The nation’s labor force consists of people who are employed plus those who are out of work, but seeking employment.
55
Structural unemployment is unemployment caused by factors in the economy, including lack of skills, changes in product demand, and technological change.
57
Full employment occurs when the unemployment rate is equal to the total of the seasonal, frictional, and structural unemployment rates.
58
The GDP gap is the difference between full employment, or potential real GDP, and actual real GDP. Therefore, the GDP gap measures the loss of output due to cyclical unemployment.