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Chapter 16 Business Cycles and Unemployment Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing In this chapter, you will learn to solve these economic puzzles: What is the difference between a recession and a depression?

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Chapter 16 business cycles and unemployment l.jpg
Chapter 16Business Cycles and Unemployment

  • Key Concepts

  • Summary

  • Practice Quiz

  • Internet Exercises

©2000 South-Western College Publishing


In this chapter you will learn to solve these economic puzzles l.jpg
In this chapter, you will learn to solve these economic puzzles:

What is the difference between a recession and a depression?

Can an economy produce more output than its potential?

Is a worker who has given up searching for work counted as unemployed?


What is a business cycle l.jpg
What is a puzzles:Business Cycle?

Alternating periods of economic growth and contraction, which can be measured by changes in real GDP


What are the four phases of a business cycle l.jpg
What are the four phases of a Business Cycle? puzzles:

  • Peak

  • Recession

  • Trough

  • Recovery


What is a peak l.jpg
What is a Peak? puzzles:

The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery


What is a recession l.jpg
What is a Recession? puzzles:

A downturn in the business cycle during which real GDP declines


What is a trough l.jpg
What is a Trough? puzzles:

The phase of the business cycle in which real GDP reaches its minimum after falling during a recession


What is a recovery l.jpg
What is a Recovery? puzzles:

An upturn in the business cycle during which real GDP rises


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Hypothetical Business Cycle puzzles:

Peak

Real GDPper year

Growth trend line

Peak

Trough

Recession

Recovery


How long before a downturn is a recession l.jpg
How long before a downturn is a Recession? puzzles:

The Department of Commerce usually considers a recession to be at least two consecutive quarters in which there is a decline in GDP


When is a downturn considered a depression l.jpg
When is a downturn considered a Depression? puzzles:

The term depression is primarily an historical reference to the extreme deep and long recession of the early 1930’s


What is economic growth l.jpg
What is puzzles:Economic Growth?

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


Why is economic growth one of our nation s economic goals l.jpg
Why is Economic Growth one of our nation’s economic goals? puzzles:

It increases our standard of living - it creates a bigger “economic pie”


What are the three types of economic indicators l.jpg
What are the three types of Economic Indicators? puzzles:

  • Leading

  • Coincident

  • Lagging


What is a leading indicator l.jpg
What is a puzzles:Leading Indicator?

Variables that change before real GDP changes


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Leading Indicators puzzles:

  • Changes in business and consumer credit

  • New orders for plant and equipment

  • New consumer goods orders

  • Unemployment claims

  • Delayed deliveries

  • New business formed

  • Average workweek

  • New building permits

  • Changes in inventories

  • Material prices

  • Stock prices

  • Money supply


What is a coincident indicator l.jpg
What is a puzzles:Coincident Indicator?

Variables that change at the same time that real GDP changes


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Coincident Indicators puzzles:

  • Nonagricultural payrolls

  • Personal income

  • Industrial Production

  • Manufacturing and trade sales


What is a lagging indicator l.jpg
What is a puzzles:Lagging Indicator?

Variables that change after real GDP changes


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Lagging Indicators puzzles:

  • Unemployment rate

  • Duration of unemployment rate

  • Labor cost per unit of output

  • Inventories to sales ratio

  • Outstanding commercial loans

  • Commercial credit to personal income ratio

  • Prime interest rate


What causes unemployment l.jpg
What causes Unemployment? puzzles:

When total spending falls, businesses will find it profitable to produce a lower volume of goods and avoid unsold inventory


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Who is considered Unemployed? puzzles:

Anyone who is 16 years of age and above who is actively seeking employment


Who is considered employed l.jpg
Who is considered Employed? puzzles:

Anyone who works at least one hour a week for pay or at least 15 hours per week as an unpaid worker in a family business


What is the unemployment rate l.jpg
What is the Unemployment Rate? puzzles:

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


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Unemployment rate puzzles:

unemployed

civilian labor force

X 100

=


How is the unemployment rate calculated l.jpg
How is the Unemployment Rate calculated? puzzles:

56,000 households are surveyed each month


What is the civilian labor force l.jpg
What is the puzzles:Civilian Labor Force?

People 16 years or older who are either employed or unemployed, excluding members of the armed forces and people in institutions


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Total Population age 16 and over puzzles:

Civilian labor force

Not in Labor ForceArmed forcesHousehold workersStudentsRetireesPersons with disabilitiesInstitutionalizedDiscourage workers

EmployedEmployeesSelf-employed

UnemployedNew entrantsRe-entrantsLost last jobQuit last jobLaid off


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Who is a puzzles:Discouraged Worker?

A person who wants to work, but who has given up searching for work. He or she believes there will be no job offers


What is underemployment l.jpg
What is Underemployment? puzzles:

People working at jobs below their level of skills


What are criticisms of the unemployment rate l.jpg
What are criticisms of the Unemployment Rate? puzzles:

  • Does not include discouraged workers

  • Includes part-time workers

  • Does not measure underemployment


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The U.S. Unemployment Rate puzzles:

25

20

15

10

5

1930

40

50

60

70

80

90

00


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Unemployment Rates for Selected Nations puzzles:

1998

12.4%

11.7%

8.3%

6.3%

6.3%

4.5%

4.3%

Japan

U.S.

Germany

U.K.

Canada

France

Italy


What are the types of unemployment l.jpg
What are the types of Unemployment? puzzles:

  • Seasonal

  • Frictional

  • Structural

  • Cyclical


What is seasonal unemployment l.jpg
What is Seasonal Unemployment? puzzles:

Unemployment caused by recurring changes in hiring due to changes in weather conditions


What is frictional unemployment l.jpg
What is Frictional Unemployment? puzzles:

Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force


What is structural unemployment l.jpg
What is Structural Unemployment? puzzles:

Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities


What is cyclical unemployment l.jpg
What is Cyclical Unemployment? puzzles:

Unemployment caused by the lack of jobs during a recession


What is full employment l.jpg
What is puzzles:Full Employment?

The situation in which an economy operates at an unemployment rate equal to the sum of the seasonal, frictional, and structural unemployment rates


What percent unemployment is considered full employment l.jpg
What percent unemployment is considered Full Employment? puzzles:

The natural rate of unemployment changes over time, but today it is considered to be about 5%


What is the gdp gap l.jpg
What is the GDP Gap? puzzles:

The GDP gap is the difference between full-employment real GDP and actual real GDP


What is the cost of unemployment l.jpg
What is the Cost of Unemployment? puzzles:

The GDP gap


Slide43 l.jpg

Civilian Unemployment Rates 1998 puzzles:

Demographic Groups

OverallMaleFemaleWhiteBlackTeenagers (16 - 19 years)White malesBlack malesWhite femalesBlack femalesLess than high schoolHigh school graduatesCollege graduates

4.5%4.4%4.6%3.9%8.9%14.6%14.1%30.1%10.9%25.3%7.1%4.0%1.8%


Key concepts l.jpg
Key Concepts puzzles:


Key concepts45 l.jpg
Key Concepts puzzles:

  • What is a Business Cycle?

  • What are the phases of a Business Cycle?

  • How long before a downturn is a Recession?

  • What are the types of Economic Indicators?

  • What causes Unemployment?

  • Who is considered Unemployed?

  • Who is considered Employed?

  • What is the Unemployment Rate?


Key concepts cont l.jpg
Key Concepts cont. puzzles:

  • What is the Civilian Labor Force?

  • Who is a Discouraged Worker?

  • What is Underemployment?

  • What are the types of Unemployment?

  • What is Full Employment?

  • What percent unemployment is considered Full Employment?

  • What is the Cost of Unemployment?


Summary l.jpg
Summary puzzles:


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Business cycles are recurrent rises and falls in real GDP over a period of years. Business cycles vary greatly in duration and intensity. A cycle consists of four phases: peak, recession, trough and recovery.


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The generally accepted theory today is that changes in the forces of demand and supply cause business cycles.


Slide50 l.jpg

A recession is officially defined as at least two consecutive quarters of real GDP decline. A trough is the turning point in national output between recession and recovery. During a recovery, there is an upturn in the business cycle during which real GDP rises.


Slide51 l.jpg

Hypothetical Business Cycle consecutive quarters of real GDP decline. A trough is the turning point in national output between recession and recovery. During a recovery, there is an upturn in the business cycle during which real GDP rises.

Peak

Real GDPper year

Growth trend line

Peak

Trough

Recession

Recovery


Slide52 l.jpg

Economic growth is measured by the annual percentage change I real GDP in a nation. The long-term annual average growth rate in the United States is 3 percent.


Slide53 l.jpg

Leading, coincident, and lagging indicators are economic variables that change before, at the same time as, and after changes in real GDP, respectively.


Slide54 l.jpg

The unemployment rate is the ratio of the number of unemployed to the number in the labor force multiplied by 100. The nation’s labor force consists of people who are employed plus those who are out of work, but seeking employment.


Slide55 l.jpg

Discouraged workers are a reason critics say the unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job.


Slide56 l.jpg

Seasonal unemployment unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. is unemployment due to seasonal changes.


Slide57 l.jpg

Frictional unemployment unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. results when workers are seeking new jobs that exist. The problem is that imperfect information prevents matching the applicants with available jobs.


Slide58 l.jpg

Structural unemployment unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. is unemployment caused by factors in the economy, including lack of skills, changes in product demand, and technological change.


Slide59 l.jpg

Cyclical unemployment unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. is unemployment resulting from insufficient aggregate demand.


Slide60 l.jpg

Full employment unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. occurs when the unemployment rate is equal to the total of the seasonal, frictional, and structural unemployment rates. Currently, the full-employment rate of unemployment in the United States is considered to be close to 5 percent. At this rate of unemployment, the economy is producing at its maximum potential.


Slide61 l.jpg

The unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job. GDP gap is the difference between full employment, or potential real GDP, and actual real GDP. Therefore, the GDP gap measures the loss of output due to cyclical unemployment.


Chapter 16 quiz l.jpg
Chapter 16 Quiz unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job.

©2000 South-Western College Publishing


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1. The phases of a business cycle are unemployment rate is understated. Discouraged workers are persons who want to work , but who have given up. Another criticism of the unemployment rate is that it overstates unemployment because respondents can falsely report they are seeking a job.

a. upswing and downswing.

b. full employment and unemployment.

c. peak, recession, trough, and recovery.

d. full employment, depression, expansion, and plateau.

C. These are the four phases of changes in real GDP which mirrors changes in employment and other key measures of the macro economy.


Slide64 l.jpg

2. The phase of a business cycle during which real GDP reaches its minimum level is the

a. recession.

b. depression.

c. recovery.

d. trough.

D. Recession is the phase during which real GDP fall and recovery is the phase during which real GDP rises. Depression is an historical reference to the deep and long recession of the early 1930’s.


Slide65 l.jpg

3. Which of the following is reaches its minimum level is the not a variable in the index of leading indicators?

a. New consumer goods orders.

b. Delayed deliveries.

c. New businesses formed.

d. Prime rate.

D. The prime rate is a lagging indicator.


Slide66 l.jpg

4. Which of the following is a coincident indicator? reaches its minimum level is the

a. Personal income.

b. Industrial production.

c. Manufacturing and trade sales.

d. All of the above.

D. All of these will change at the same time that real GDP changes.


Slide67 l.jpg

5. The labor force consists of all persons reaches its minimum level is the

a. 21 years of age and older.

b. 21 years of age and older who are working.

c. 16 years of age and older.

d. 16 years of age and older who are working or actively seeking work.

D. The labor force also includes the armed forces, but excludes the category called “persons not in labor force.”


Slide68 l.jpg

6. People who are not working will be counted as employed if they are

a. on vacation.

b. absent from their job because of bad weather.

c. absent from their job because of a labor dispute.

d. all of the above.

D. A person who works at least 1 hour per week for pay or at least 15 hours per week as an unpaid worker in a family business is counted as employed regardless of the special situations listed in a, b, and c.


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7. The number of people officially unemployed is not the same as the number of people who can’t find a job because

a. people who have jobs continue to look for better ones.

b. the armed forces are included.

c. discouraged workers are not counted.

d. of all of the above.

C. A person can quit looking for a job because he is discouraged after trying to find one, but wants to work if he could find a job, yet this person is not considered unemployed because he is not actively seeking employment.


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8. Frictional unemployment applies to same as the number of people who can’t find a job because

a. workers with skills not required for existing jobs.

b. short periods of unemployment needed to match jobs and job seekers.

c. people who spend long periods of time out of work.

d. unemployment related to the ups and downs of the business cycle.

B. Frictional unemployment includes people changing jobs, initially entering the labor force, or re-entering the labor force.


Slide71 l.jpg

9. Structural unemployment is caused by same as the number of people who can’t find a job because

a. shifts in the economy that make certain job skills obsolete.

b. temporary layoffs in industries such as construction.

c. the impact of the business cycle on job opportunities.

d. short-term changes in the economy.

A. Structural unemployment is long-term unemployment because the skills of unemployed workers do not match the skills required for existing jobs.


Slide72 l.jpg

10. Unemployment that is due to a recession is same as the number of people who can’t find a job because

a. involuntary unemployment.

b. frictional unemployment.

c. structural unemployment.

d. cyclical unemployment.

D. Only cyclical unemployment is attributable directly to the business cycle.


Slide73 l.jpg

11. Seasonal, frictional and structural unemployment is equal to

a. frictional unemployment.

b. structural unemployment.

c. cyclical unemployment.

d. full employment.

D. Full employment does not mean zero unemployment. Even in the best times, there is always seasonal, frictional, and structural unemployment.


Slide74 l.jpg

12. Which of the following statements is true? equal to

a. The four phases of the business cycle, in order, are peak, recovery, trough, and recession.

b. When unemployment is rising, then real GDP is rising.

c. The economic problem typically associated with a recovery is rising unemployment.

d. Full employment exists in an economy when the unemployment rate equals the sum of seasonal, frictional, and structural unemployment rates.

D. There will always be some people looking for work.


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13. Which of the following groups typically has the highest unemployment rate?

a. White men and women.

b. African-American men and women as a group.

c. Teenagers.

d. Persons who completed high school.

B. In 1998 the unemployment rate of black males was 30.1% and black males was 25.3%.


Slide76 l.jpg

Civilian Unemployment Rates 1998 unemployment rate?

Demographic Groups

OverallMaleFemaleWhiteBlackTeenagers (16 - 19 years)White malesBlack malesWhite femalesBlack femalesLess than high schoolHigh school graduatesCollege graduates

4.5%4.4%4.6%3.9%8.9%14.6%14.1%30.1%10.9%25.3%7.1%4.0%1.8%


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14. Which of the following is true? unemployment rate?

a. The GDP gap is the difference between full employment real GDP and actual real GDP.

b. We desire economic growth because it increases the nation’s real GDP.

c. Economic growth is measured by the annual percentage increase in a nation’s real GDP.

d. Discouraged workers are a reason critics say the unemployment rate is understated.

e. All of the above are true.

E. All of the above are true.


Internet exercises l.jpg
Internet Exercises unemployment rate?

Click on the picture of the book, choose updates by chapter for the latest internet exercises


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END unemployment rate?


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