Week 7: Business Cycles, Unemployment, and Inflation

The causes of inflation are usually related to:

-changes in the money supply -economy-wide changes in demand or supply for goods and services

There are three types of unemployment

-cyclical -frictional -structural

The labor force does not include:

-individuals who are institutionalized -individuals who are under the age of 16

A discourage worker is:

-not a part of the labor force -someone who wants to work but is not actively looking for a job

Why is an unemployment rate of 0% not considered desirable?

-some structural unemployment indicates innovation and growth -some frictional unemployment is healthy as people move to new, better jobs

Considering the presidential electrons since 1948, data showed that a strong economy seemed to help the:

incumbent party

Economists define ___________ as a general increase in the prices of goods and services

inflation

Due to some illness, Sally is not able to look for jobs. Sally is

not in the labor force

The amount of goods and services that can be purchased with actual income is:

real income

The measure of the purchasing power of what you earn every month is:

real income

The National Bureau of Economic Research determines when _______ begin and end

recessions

A skilled glass blower becomes unemployed when a new machine does her job faster This an example of _______ unemployment

structural

Advances in technology make the assembly-line worker's job obsolete. This an example of _______ unemployment

structural

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. If Hovana's actual unemployment rate is 16.3 percent, you can conclude that

there is a recession

The National Bureau of Economic Research determines

when business cycles begin and end

Unemployment benefits have nothing to do with the unemployment calculations conducted by the Bureau of Labor Statistics

True

Natural rate of unemployment is calculated by

1. add the frictionally unemployed and the structurally unemployed 2. divide that by the size of the labor force 3. multiply by 100.

An economy operating at full employment does not employ ________ percent of workers in the labor force

100

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. The natural rate of unemployment is

13.3% ((15 million + 5 million)/150 million) * 100 =13.3%

The recession phase of business cycle is characterized as a decline in real output for at least __________ months

6

Janice is on sick leave from work. Janice is

employed

George, who laid off, is expecting to be rehired, but he is currently seeking a job in other firms as well. George is

unemployed

Percentage Change in Real Income

percentage change in nominal income - percentage change in price level (%∆Nominal Income - %∆Prices)

In the expansion stage of the business cycle, _____________ may be pushed upward due to increases in resource utilization and income

prices

____________ income measures the purchasing power of what you earn every month

real

A long-lasting and severe ________ is also known as a depression

recession

The _________ phase of the business cycle is characterized by full, or near-full, employment and real output that is at, or close to, an economy's full capacity

peak

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. Now suppose that Hovana's Bureau of Labor Statistics releases the newest numbers for the fictional and structural unemployment: 18 million and 7 million, respectively. What is Hovana's new natural rate of unemployment?

((18 million + 7 million)/150 million) * 100 =16.7%

Nominal incomes for two years are shown in the table below. Assume that Year 1 is the base year. Year Nominal income CPI 1 $48,000 100 2 $53,000 105 To the nearest dollar, the value of the real income in Year 1 is

(48,000/100)*100 = $48,000

Nominal incomes for two years are shown in the table below. Assume that Year 1 is the base year. Year Nominal income CPI 1 $48,000 100 2 $53,000 105 To the nearest dollar, the value of the real income in Year 2 is

(53,000/105)*100 = $50476.2

The labor force participation rate is:

(Labor Force/Population age 16 and up)*100 dividing the number of people actively participating in the labor force by the total number of people eligible to participate in the labor force.

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. Now suppose that in the following year, the number of employed increases to 200 million while the number of unemployed decreases to 10 million. What is Hovana's unemployment rate now?

4.8% (10 million/(200 million + 10 million))*100= 4.8%

Dan was recently laid off from his job. His boss told him that the slowing economy was to blame. Dan is _____ unemployed

cyclically

Real Income

[(Nominal Income/Consumer Price Index)*100]

Which of the following persons would not be considered unemployed?

a construction worker who has given up looking for work after 18 months without a job

To truly determine whether changes in the unemployment rate translate into improvements in labor and economic conditions, you have to look at the:

actual number of individuals employed and unemployed relative to the size of the labor force

Jim lost his sales job at the Mercedes dealership because times were tough and people could no longer afford luxury cars. Jim is _______ unemployed

cyclically

A medical doctor is working as a waiter. The doctor is

employed

Denise stays at home with her children but works as an accountant in a supermarket every Friday and Saturday. Denise is

employed

A group of workers at a furniture manufacturing plant quit their jobs because they want to live in another town. They start searching for work in the new town. These workers are _______ unemployed

frictionally

Jenny was not satisfied with her job in a hospital, so she left the job to find a new job in a health clinic. Jenny is _______ unemployed

frictionally

Juan recently graduated from college and is looking for his first job. Juan is _____ unemployed

frictionally

There will always be ______ unemployed workers searching for positions or in between jobs

frictionally

The U.S. Bureau of Labor Statistics uses the Consumer Price Index to track _________ over time

inflation

When calculating an ____________ rate, the most straightforward approach is to compare the price level in one year with the price level in the next year

inflation

Nominal income

is the actual number of dollars received in exchange for the different resources available in the economy

Real income

is the amount of goods and services that can be purchased with nominal income; the inflation adjusted measure of income

Cyclical unemployment

is the type that rises during economic downturns and falls when the economy improves; it is the extra unemployment that occurs during recessions

The unemployment rate is the proportion of the _____________ ___________ that is unemployed

labor force

A graph of the business cycle shows the:

level of real GDP on the vertical axis and time on the horizontal axis

The actual number of dollars received in exchange for the different resources available in the economy is:

nominal income

Alice, who has not worked in a year, took a resume-building workshop to help her prepare for a job search. Alice is

not in the labor force

In the past four weeks, Joe, who has not worked for two years, searched through some job listings online but did not see anything interesting. Joe is

not in the labor force

Stan is a student who will apply for a summer job but is currently in school. Stan is

not in the labor force

Structural unemployment

occurs because of a geographic or skill mismatch between workers and employers

Frictional unemployment

occurs when people take time to find a job; it is the short-term unemployment associated with the process of matching workers with jobs.

Many jobs are shifted from United States in Mexico because labor is available at lower wages in Mexico This an example of _______ unemployment

structural

Emma recently quit her job in San Diego to move to St. Louis to be closer to friends and family. She is currently working with a local employment agency to help her find a new job. Emma is _______ unemployed

structurally

General Motors lays of 5,000 workers and replaces the m with robots. These workers are ________ unemployed

structurally

Liz was working at a textile plant. Her employer now uses robots to do her job, and she is looking for another job. Liz is _____ unemployed

structurally

Hovana has a labor force of 150 million people, 15 million of whom are currently frictionally unemployed and another 5 million of whom are currently structurally unemployed. If Hovana's actual unemployment rate is 13.3 percent, you can conclude that

there is no cyclical unemployment

The _________ phase of the business cycle is characterized by employment and real output being at their lowest level within a cycle

trough

Jim is without a job is available to work and has actively looked for employment in the past four weeks. Jim is

unemployed

Now that the children are out of the house, a homemaker has been looking for part-time work four weeks. The homemaker is

unemployed

Roger, a 70-year-old retiree who has not worked for five years, has been looking for work again for the past two months. Roger is

unemployed

To be included in the labor force, someone needs to be:

working or actively searching for a job