Chapter 7 - Chapter 7 - Economic Fluctuations, Unemployment...

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Chapter 7 - Economic Fluctuations, Unemployment and Inflation Output, inflation and unemployment are the three main econ vars watched by media, investors, politicians, businesses to assess the health of the economy. Some goals of the economy are: economic stability, low and stable inflation, real growth in output/income, low unemployment, etc. There is disagreement about what, if anything, the government can do to promote econ stability/growth. Example: laissez-faire (leave us alone). Example : misery index = Un rate + inf rate. Lower the better. Right now it would be about 8%. 70s and 80s it was 20-25%. BUSINESS CYCLES - Real growth in GDP has averaged 3%/year over this century. Some periods it was 6% and other periods it was negative. The fluctuations in real GDP growth is what we call the business cycle. We are in the expansionary phase of the ninth business cycle since WWII. Last recession was 91-92. Alternate periods of econ expansion and contraction. See page 168-169. Expansion - low unemployment, strong retail sales, rising stock market, pos growth in real output, etc. Contraction/recession - high unemployment, weak retail sales, declining stock market, low or neg growth in real output. Recession - two or more consecutive quarters of neg real GDP growth. Depression - prolonged and severe recession lasting years. un=25% in 1930s. The business cycle does NOT mean that there is anything regular about the bus cycle. Fluctuations are random and unpredictable. Periods of expansion and contraction vary quite a bit. Expansions have lasted from two years to eight years. ECONOMIC FLUCTUATIONS AND THE LABOR MARKET Swings in the business cycle influence the demand for labor and the un rate. Some definitions: Labor Force = those over 16 who are either employed or looking for a job (unemployed). RATE OF LABOR FORCE PARTICIPATION = Labor Force/Total population.
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See page 171. Not in the labor force = household workers, students, retirees, and disabled. In 1995, the rate of labor-force participation was 66.6%. 132.3m/198.6m. Men - 75.4% Women - 59.2%. Average = 66.6%. See page 172 for an analysis of how the labor-force participation of men and women varies over time. The LFP (labor force participation) for women has been increasing, and for men has been decreasing. Shows how the workforce and labor market have been changing. LFP is about the same in Canada vs US (67 vs 66%) In Germany, it is 55% and in Italy it is 47%. UN RATE = No of persons unemployed/Labor force x 100. Percentage of persons in the labor force who are: 1) actively looking for a job or 2) waiting to begin or return to a job. Avg un rate over the last 25 years has been 6.7% vs. 4.5% right now in U.S. vs. 12% in Germany, France, Belgium and 20% in Spain. Un rate is calculated by survey of about 60,000 households every month, representing about 100,000 adults in 729 locations around the country. See page 173. REASONS FOR UNEMPLOYMENT
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This note was uploaded on 11/18/2011 for the course ECON 101 taught by Professor Gottlieb during the Fall '08 term at Rutgers.

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Chapter 7 - Chapter 7 - Economic Fluctuations, Unemployment...

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