Business Cycles and Unemployment
What is a 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? Peak Recession Trough Recovery
Hypothetical Business Cycle Peak Real GDP per year Growth trend line Peak Trough Recession Recovery
How long before a downturn is a recession? The Department of Commerce considers a recession to be at least two consecutive quarters in which GDP declines
What are the three types of economic indicators? Leading Coincident Lagging
What is a leading indicator? Variables that change before real GDP changes
Leading Indicators 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? Variables that change at the same time that real GDP changes
Coincident Indicators Nonagricultural payrolls Personal income Industrial Production Manufacturing and trade sales
What is a lagging indicator? Variables that change after real GDP changes
Lagging Indicators 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
Who is considered unemployed? Anyone who is 16 years of age and above who is actively seeking employment
Who is considered employed? 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? The percentage of people in the labor force who are without jobs and are actively seeking jobs
unemployed civilian labor force = X 100 Unemployment rate unemployed civilian labor force = X 100
How is the unemployment rate calculated? 56,000 households are surveyed each month
What is the civilian labor force? People 16 years or older who are either employed or unemployed, excluding members of the armed forces and people in institutions
Total Population age 16 and over Employed Employees Self-employed Civilian labor force Not in Labor Force Armed forces Household workers Students Retirees Persons with disabilities Institutionalized Discourage workers Employed Employees Self-employed Unemployed New entrants Re-entrants Lost last job Quit last job Laid off
The U.S. Unemployment Rate 25 20 15 10 5 1930 40 50 60 70 80 90 00
What are the types of unemployment? Seasonal Frictional Structural Cyclical
What is seasonal unemployment? Unemployment caused by recurring changes in hiring due to changes in weather conditions
What is frictional unemployment? Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force
Structural unemployment is unemployment caused by factors in the economy, including lack of skills, changes in product demand and technological change.
What is cyclical unemployment? Unemployment caused by the lack of jobs during a recession
What is 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 is considered full employment? The natural rate of unemployment changes over time, but today it is considered to be about 5%