Econ Quiz 5

To be able to explain the main causes of recessions.

A shock external to the economy Monetary policy and oil shocks are most common in post war era. 1. Monetary Policy (to reduce inflation) - oil disruption due to Yom Kipper war 2. Oil shock (big price increase) 3. Fiscal (to quickly balance the budget) - federal spending and taxes. 4. Financial (lending falls)

To be able to explain what is meant by frictional, structural, and cyclical unemployment.

Frictional: Unemployment when workers are between jobs. It is the short-term unemployment that arises from the process of matching workers with jobs. Cyclical: Unemployment caused by a business cycle recession. Structural: A mismatch of skills. Unemployment that arises from a persistent mismatch between skills or attributes of workers and the requirements of jobs.

To be able to explain how the labor force, employment, unemployment, the unemployment rate, underemployment rate (U-6), the percent of the unemployed more than 27 weeks, and the labor force participation rate behaved since 1970.

Labor force has increased, employed over 27 weeks has increased, participation rate has increased, employment has increased, unemployment has increased, unemployment rate is the same, underemployment rate has increased.

o be able to explain the natural rate of unemployment and its connection to potential GDP.

Natural rate of unemployment is between 5%-6% When real GDP=Potential GDP, the unemployment rate is at its natural rate.

To be able to use Okun's Law to explain the relationship between unemployment and real GDP.

There needs to be 3% growth in order to keep unemployment rate constant. So GDP must rise to keep unemployment rate stable.

To be able to explain, correctly use, and calculate the underemployment rate (U-6) and the labor force participation rate.

Underemployment are those who have looked for a job in the past 12 months, but not the last month, and those who are working full time but wish to work full time. Participation rate= (labor force/working age population)

To be able to explain how unemployment and the unemployment rate are calculated and be able to explain the terms that are used in these calculations (i.e. labor force, employment, and unemployment).

Unemployment rate=(unemployed/labor force)*100 Unemployment is people who aren't working and have looked for a job in the last month. It is Frictional+structural+cyclical= total unemployment.

To be able to explain basic facts about the business cycle, including how the 2007-2009 recession (sometimes called the "Great Recession") and its aftermath compares to other downturns.

We go through periods of growth and declines, and have to work our way back up after recessions. Its aftermath is similar to other recessions.