Pump Primer. List and describe the four types of unemployment. “ECONOMICS for Christian Schools”. By Alan J. Carper Bob Jones University Press. 1998. Unit V: Economics of the Government. Chpt. 13: “The Business Cycle and Unemployment”. Objectives:.
A. Four Phases:
(1) expansion (or) recovery
(2) peak (or) boom
(3) recession (or) contractionary
(4) trough (or) depression
Peak (or) Boom
Expansion (or) Recovery
Recession (or) Contractionary
Trough (or) Depression
Two Other Theories (not mentioned in text)
– holds that bursts of inventiveness (born of greater investment spending) lead to recoveries. Lapses in investment spending and inventiveness, on the other hand lead to recession.
( – holds that liberal politicians tend to overspend, stimulating the economy into recovery and eventually into an inflationary peak. Conservative politicians, on the other hand, tend to reduce government spending, destimulating the economy into a recession.
The Unemployment Rate
equals the percentage of the labor force that is not employed but is looking for work. (referred to sometimes as the Civilian Unemployment Rate)equals number of unemployed people divided by the total number of people in the labor force.
(1) All individuals who are not counted in the labor statistics: individuals under 16 or over 64, those in the armed forces, and those who are institutionalized.
(2) Consists of the majority of the U.S. population: individuals between 16-64 yrs. of age (that are not mentioned in group one).
1. labor force
2. Not included in work force
Flaws in Unemployment Statistics
(1) Many people work but are not counted as being employed.
(2) Some people do not work and are not in the unemployment statistics.
(3) Some people are counted as being employed but are actually underemployed. (Government considers someone employed if he works 1 hr. a day for pay.)
(4) Some who are counted as unemployed do have jobs.
(Carper 192-194 )
Activity 17 & 18
Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education, New York, N.Y
Expansion / Recovery
Expansion / Recovery
LR level of Real GDP
Recession (or) Contractionary
Period of Time
Recession = two consecutive quarters (six months) of negative growth in real GDP
Peak = highest point before a recession
Trough = the lowest point at the end of a recession and before an expansion
Expansion = the period between the end of a recession and the next peak (real GDP grows)
Recovery = the very beginning of an economic expansion
Boom = an extremely fast increase in output, usually near the end of an expansion
Depression = a very long and low recession
Interesting phenomena occurs with the unemployment rate over a business cycle.
Read the page 87.
1. Figure 17.2 (pp. 89-91) contains information for the U.S. economy from 1980 through 2001. For each quarter, first identify whether the economy was in an expansionary (E) or a contractionary (C) phase.
Go back and pick out the quarters that correspond with a business cycle peak, and mark them with a P.
Then, find the quarters that correspond with a trough, and mart them with a T.
Some of the answers have been provided for you!
The period from 1992 through 2001 had low unemployment and inflation rates.
1980. Both unemployment and inflation rates were very high.
The unemployment rate was higher. As real GDP fell, the unemployment rate increased; because of rising inventories, workers were laid off.
There is unemployment even at full employment because of frictional and structural unemployment.
Unemployment remains high for two reasons: (1) frictional and structural employment and (2) with an expanding economy, more people move into the labor force looking for work.
The inflation rate decreases during contractions but fluctuates during recoveries.
Answer the questions and briefly explain your answers.
Ellen is incorrect. Of more people enter the labor force and most of them do not find jobs, both the employment and unemployment rates will rise.
False. GDP measures a stream of production or income in a particular year or time period. Wealth includes the current value of goods and services produced in past years.
False. GDP measures the production of the nation. Even during recessions, many people’s real incomes rise.
True. Real GDP would fall by about 2% because the inflation rate is higher than the rate of growth in nominal GDP.
False. Commodities should enter the index with the weight that represents in people’s actual pattern of consumption or use. Different groups have different consumption patterns. An index cannot capture everyone’s cost of living.
False. Structural unemployment occurs because people do not have the skills necessary for the jobs available. Frictional unemployment occurs when people are between jobs. They will find employment, but it will take time to match them with job vacancies.
Borrowers pay back a fixed number of dollars, but these dollars are worth less. This means that the purchasing power of the dollars that lenders receive is lower than the purchasing power of the dollars in the original loan.
If the loan has a variable interest rate and inflation causes nominal interest rates to rise, the lender will not be hurt as badly because the lender can raise the interest rate on the loan.
False. Although this is sometimes the case, look at the data in Activity 17 to illustrate that this is not always true. During 1983q2 to 1987q1, the unemployment rate was decreasing and inflation was highly variable.
False. At full employment we have frictional and structural unemployment. Frictional unemployment occurs when people are between jobs; structural unemployment occurs when people do not have the skills for the jobs that are available.
Uncertain. For the seasonally unemployed person it can be a worry. However, stimulating the economy may not change the situation. Seasonal workers are people who work only during particular seasons of the year such as Christmas time or harvest time.
Blade, Robin, and Michael Parkin. Foundations of Economics: Instructor’s Manual. 2nd ed. Boston: Pearson Education, Inc., 2004.
Carper, Alan. Economics for Christian Schools. Greenville: Bob Jones University Press, 1998.