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Chapter6 - are to best address the problem However seasonal...

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Chapter 6 Business Cycles and Unemployment CHAPTER SUMMARY Macroeconomic instability is one of the problems associated with capitalism. Macroeconomic instability is the presence of the business cycle---the ups and downs in the economy. The business cycle trends upward at the secular growth trend of around 3 percent. There are four phases of a particular business cycle: the peak, recession, trough, and the recovery. The two problems associated with a recession are cyclical unemployment and lagging economic growth. We desire economic growth because it increases our nation's absolute standard of living. The major problem with an expansionary phase is inflation. We try to smooth out the business cycle with the use of fiscal and monetary policy. Economic indicators help us to try to predict the business cycle. There are four different types of unemployment: seasonal, frictional (transitional), structural and cyclical. We need to know which type of unemployment we are experiencing if we
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Unformatted text preview: are to best address the problem. However, seasonal, frictional and structural unemployment cannot be easily combated with the use of fiscal and monetary policy. Indeed, there is a full employment unemployment rate of around 5%. That is, full employment exists when the unemployment rate is equal to the sum of seasonal, frictional, and structural unemployment rates. Unemployment statistics may understate (e.g. discouraged workers) or overstate true unemployment. A recessionary gap is the amount by which GDP falls below that necessary to provide for full employment. An inflationary gap is just the opposite. NEW CONCEPTS INTRODUCED business cycle coincident indicators frictional unemployment GDP gap recession lagging indicators structural unemployment trough recovery unemployment rate cyclical unemployment economic growth civilian labor force full employment leading indicators discouraged worker peak...
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