Macro Chapter 6- Business Cycles and Unemployment

Business Cycle

Alternating periods of economic growth and contraction. Measured by changes in Real GDP

Four Phases of Business Cycle

Peak

Recession

Trough

Recovery

Peak

The phase of a business cycle in which real GDP reaches its maxium after rising

Recession

Downturn of the business cycle during which real GDP declines

Trough

Real GDP reaches its minimum after falling during a recession

Recovery

Upturn in the business cycle in which real GDP reaches its minimum after falling during a recession

Economic Growth

An expansion in national output measured by the annual percentage increase in a nation’s real GDP

Economic Indicators- Three Types

Leading

Coincident

Lagging

Leading Indicators

Variables that change before real GDP changes

Coincident Indicators

Variables that change at the same time real GDP changes

Laggig Indicators

Variables that change after real GDP changes

Business Cycles

Changes in Total or Aggregate Expenditures

Unemployment Rate

The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs

How is the unemployment rate information gathered

Each month, the Bureau of Labor Statistics sends. a survey to 60,000 households and ask 16-year-olds or older who is employed

Employed

A person who works at least 1 hour per week or at least 15 hours per week as an unpaid worker in a family business

Unemployed

A person who does not have a job bu looked for work in the last month

Civilian Labor Force

The number of people 16 or older who are employed or actively seeking a job

How is the civilian unemployment rate calculated

Unemployment Rate= (Unemployed)/(Civilian Labor Force) x 100

Discouraged Workers

A person who wants to work but has given up searching for work because they believe there are no job offers

Three Types of unemployment

Frictional

Structural

Cyclical

Frictional Unemployment

Temporary unemployment caused by the time required of workers to move from one job to another

Structural Unemployment

Unemployment caused by lack of skills

Cyclical unemployment

Unemployment caused by the lack of jobs during a recession

Full Unemployment

Situation in which an economy operates ta an unemployment rate equal to the sum of the frictional and structural unemployment rates

What rate of unemployment is considered full unemployment

5%

GDP gap

Difference between real GDP and potential GDP with full employment