do What we call 2 or more
What
quarters of a decline in GDP?
Chapter 8
Chapter
Unemployment, Inflation and
Economic Fluctuations
In business cycle theory, what
is a trend line?
1. A movement from recession to expansion
2. A movement from expansion to recession
3. The average growth rate of the business
cycle
4. The movement from one peak to the
next peak
1. Recession
2. Depression
3. Inflation
4. Stagflation
Chapter 8 Unemployment,
Economic Fluctuations and
Inflation
On average, since 1900, our real GDP
has increased about 3 % per
yearbut its not a stable growth
year
it
rate (it IS, however, an upward
trend).
What is a business cycle?
(3.5%)
Phases of the business cycle
Peak
Contraction
Trough
Expansion
Trend linegenerally an upward trend
line
(AVERAGE growth rate of GDP)
Recession 2 or more qtrs. of decline in
real GDP
Depression a big recession! (prolonged &
severe)
What are some of the Economic
What
indicators that help determine the
business cycle?
1. Civilian Labor Force no. of people, 16 and older who
are either employed or unemployed (looking for a job).
LF = U + E
2. Unemployed person who does not have a job but
who is Actively seeking a job (but how do you
Actively
decide who is ACTIVELY SEEKING A JOB?) or
waiting to begin or return to a job.
waiting
return
3. Unemployment RATE No. Unempl.
X 100
No. in LF
What are some of the Economic
indicators that help determine the
business cycle?
4. Labor Force Participation Rate no. of people 16
yrs. of age or older who are employed or unemployed as
a percentage of the total civilian population, 16 yrs. or
older.
More developed nations have higher LFPR.
Countries with lower LFPR generally have a small no. of
married women in the LF
(as a percent)
(as
.
No. of 16+ in LF)
X 100
No. of 16+ (non-instit.) in population
(non-
(as a percent)
(as
4. Labor Force Participation Rate
What are some of the Economic
indicators that help determine the
business cycle?
5. Employment/Population rate no. of 16+
employed citizens as a percent of total 16+
population.
Rises during an expansion, falls during a recession.
More easily defined than actively seeking a job so
job
Class Activity 8.2
Do we want zero unemployment?
or
Is some unemployment good for an
economy?
may be better measurement than unemployment rate.
No. of employed 16+ in LF
. X 100
employed
No. of 16+ (non-instit.) in population
(non-
Types of Unemployment
1. Natural Rate of Unemployment healthy rate of
unemployment (desired rate) generally: 4% -- 6%
a. Frictional between jobs unemployment -jobs
unemployment that results from a lack of information
in the labor market..skills DO match jobs .just
market ..skills
have not FOUND the right job yet.
b. Structural unemployment caused by changes in the
structure of the economy (changes in S & D
conditions) (skills do NOT match jobs)
(skills
jobs)
Please explain.
(as a percent)
(as
Ex. in D for Amer. Made cars but in D for American made
computers (not trained yet for computer work)
Often more regional in nature
Can result from changes in technologycreative destruction
technology
Types of Unemployment
1. Natural Rate
a. Frictional unemployment- (skills match jobs)
unemploymentb. Structural unemployment (skills do not match jobs)
not
Changes in S & D conditions
conditions
Changes in technology (tech. unempl creative destruction)
technology
JOHN DEERE tree cutting machine creative destruction
Activity 8.2 Describe some of
the jobs that machine replaced.
How many jobs do you think it
will create?
Will they be in the same place?
(the same part of the country)
Will they be in the same
COUNTRY?
John Deere 1270-D
John
1270-
Types of Unemployment
1. Natural Rate
1.
a. Frictional unemployment- (skills match jobs)
unemploymentb. Structural unemployment (skills do not match jobs)
not
Changes in S & D conditions
conditions
Changes in technology (tech. unempl creative destruction)
technology
JOHN DEERE tree cutting machine creative destruction
Seasonal unemployment (ski instruc. In summer, lifeguards
in winter, agricultural workers)
Public Sector Unemployment (Policy Induced Unempl.)
changes in govt policy that lead to unemployment
gov
Space program = unemployment
Space Program = unemployment
Defense spending = unemployment
2. Cyclical Unemployment
In the video from Ch. 17, when Shirley lost
her job at the Levis plant due to outsourcing
Levi
and had to retrain as herself a secretary, what
type of unemployment did she suffer from?
1. Cyclical
2. Frictional
Types of Unemployment
1. Natural Rate
a. Frictional
b. Structural
2. Cyclical unemployment
unemployment that results when the entire
economy is doing poorly (recession)
(recession)
AGGREGATE Demand has decreased, not just
in D in one industryunemployment
industry
will be prolonged.
PRS
Which of the following people are
unemployed?
1. Yes
2. No
3. Structural
4. Policy Induced
20 year old looking for 1st job
Which of the following people are
Which
unemployed?
1. Yes
2. No
Which of the following people are
unemployed?
1. Yes
2. No
College student attending
school full time
Stay at home mom
Which of the following people are
unemployed?
Which of the following people are
unemployed?
1. Yes
2. No
60 year old former steel
worker who wants to work
but has given up actively
seeking employment
Which of the following people are
unemployed?
1. Yes
2. No
Laid off construction worker
waiting to return to previous
job
1. Yes
2. No
Economist who returned to
graduate school after failing
to find job
Which of the following people are
unemployed?
1.Yes
1.Yes
2.No
2.No
School administrator who
has been working as a
substitute teacher one day a
week while looking for a full
time job in administration
The US has had a substantial increase in
The
unemployment over the past 2 years. Most of
that increase in unemployment is classified as
what type?
1. Cyclical
INFLATION a continual increase in
the average price level which leads to
a decrease in purchasing power of
money
Why study about inflation?
German Hyperinflation of 1920s
Zimbabwe today
2. Frictional
What causes inflation?
3. Structural
4. Policy Induced
Zambia
Reissued
Reissued
currency at
$1 : $10 Billion
new : old
INFLATION a continual increase in
the average price level which leads to
a decrease in purchasing power of
money
Why study about inflation? German
Hyperinflation of 1920s
What causes inflation?
Aggregate D > Aggregate Supply
Supply
but what causes THAT??
Increase in the GR of our real money
supply over and above any increase
in real output
Heres Germanywhat does US money supply look like?
Here Germany
How does the U.S. get money into the
economy? (to increase the money supply)
1. Drops money out of an airplane.
2. Drops money out of a helicopter.
3. The Money Fairy
4. The Full Monty
From our CPI, how do we determine the inflation RATE?
From
What is the Money Fairy? It describes
Fairy
the process by which
1. the U.S. government borrows money.
2. Banks create money through the loan
process.
3. Hyperinflation is brought under control
by decreasing the money supply.
4. Money is printed by the U. S. Bureau of
Printing and Engraving.
How to determine the RATE of Inflation
1. We already know ONE way to do it.
it
OLD CPI yr. desired X 100
Old CPI of New Base Yr.
How to determine the RATE of Inflation
1. We already know ONE way to do it.
it
OLD CPI yr. desired X 100
Old CPI of New Base Yr.
Year
2000
2001
CPI
115
126.5
NEW CPI.
100
(126.5/115) * 100 = 110
But once you HAVE That numberwhat is the inflation
number
rate?
10%
How to determine the RATE of Inflation
1. Inflation RATE (% in CPI):
CPI):
current CPI previous CPI
previous CPI
(part/whole)
X 100
2. OR a second way to determine the RATE of
Inflation
current CPI previous CPI X 100
previous CPI
Part/whole
Year
1980
1990
2000
2001
CPI
80
100
115
126.5
INFLATION RATE
--XX---XX-(100 - 80) / 80 = .25 X 100 =
.
How to determine the RATE of Inflation
How
For Practice:
1. Inflation RATE (% in CPI):
CPI):
current CPI previous CPI
previous CPI
Year
1980
1990
2000
2001
CPI
80
100
115
126.5
X 100
INFLATION RATE
--XX---XX--
.
25%
15%
15%
(126.5 115) / 115 = .10 X 100 = 10%
Year
1995
1996
1997
1998
1999
CPI
153.5
168.5
161.3
163.9
168.3
Inflation Rate
--XX---XX-_______
_______
_______
_______
(100 - 80) / 80 = .25 X 100 =
(115 - 100) / 100 = .15 X 100 =
Types of Inflation
Types
Unanticipated Inflation more
Find inflation rate, either of 2 ways.
What is the inflation rate for 2001? ITs in
IT
percentage terms, but just enter the NUMBER
(not the % sign).
damaging.do not take steps to prepare
damaging
Investment suffers (bank loans, too risky)
Use resources to PREDICT inflation. Instead of to
produce things
Anticipated Inflation can prepare & plan
End of Chapter 8
Year
Year
1990
2000
CPI
115
126.5