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Instructor6Commentary - 1 INSTRUCTOR COMMENTARY Text...

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INSTRUCTOR COMMENTARY Text Reference: Chapter 6 Measuring the Labor Force and Unemployment 1. Chapter 6 focuses on the following important concepts: A. The difference in potential economic performance caused by resource owners not committing all of their resources to the production process. One of the fundamental characteristics of a market economy is the freedom of choice that resource owners have to decide whether to commit the resources they own to the production process at any given time. If resource owners choose not to commit all of such resources to the production process, then the potential economic performance of the economy is reduced. A new production possibilities schedule (which is “inside” the original one) must be drawn to reflect such decisions by resource owners. B. The business cycle. The business cycle refers cyclical fluctuations of real GDP over time. The four stages of such cycles are peak, recession, trough and recovery. The business cycle is not “symmetrical” and recessions may last longer than periods of expansion (or vice versa). Similarly, the height of “peaks” and “troughs” in the business cycle may differ. The business cycle, though, is a recurring feature of market economies, including that of the United States. (text, p. 151) C. How the current civilian labor force is measured. The potential civilian labor force is measured as follows: beginning with the total population, subtract those aged 15 years or less, all institutionalized persons and all persons employed in the Armed Forces. From the potential civilian labor force, determine those classified as employed, unemployed and out-of-the-labor force. Those classified as employed or unemployed constitute the current civilian labor force. You should note that the presentation in the textbook (Exhibit 6, p. 158) differs slightly from the presentation in Lecture 6. I prefer the lecture presentation because it clarifies the different between the potential and actual civilian labor forces. In Exhibit 6, some of the groups listed as “Not in the Labor Force” are 1
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in that category because they are not included in any labor force measure (e.g. persons with disabilities) while otherpersons in Exhibit 6 are members of the potential civilian labor force (e.g., students, retirees) even though they are not currently in the actual labor force in any given month. The basic differences between the presentation in Lecture 6 and Exhibit 6 are as follows: (1) Beginning with the total population aged 16 years or greater, the potential civilian labor force may be derived by subtracting persons with disabilities and those who are institutionalized (to obtain the non- institutional population aged 16 years or more) and by subtracting those employed in the Armed Forces, (to calculate the potential civilian labor force.
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