1. Business Cycles and Unemployment

2. What is a business cycle?
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP

3. What are the four phases of a business cycle?
Peak
Recession
Trough
Recovery

4. Hypothetical Business Cycle
Peak
Real GDP per year
Growth trend line
Peak
Trough
Recession
Recovery

5. 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

6. What are the three types of economic indicators?
Leading
Coincident
Lagging

7. What is a leading indicator?
Variables that change before real GDP changes

8. 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

9. What is a coincident indicator?
Variables that change at the same time that real GDP changes

10. Coincident Indicators
Nonagricultural payrolls
Personal income
Industrial Production
Manufacturing and trade sales

11. What is a lagging indicator?
Variables that change after real GDP changes

12. 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

13. Who is considered unemployed?
Anyone who is 16 years of age and above who is actively seeking employment

14. 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

15. What is the unemployment rate?
The percentage of people in the labor force who are without jobs and are actively seeking jobs

16. unemployed civilian labor force = X 100
Unemployment rate
unemployed
civilian labor force =
X 100

17. How is the unemployment rate calculated?
56,000 households are surveyed each month

18. 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

19. 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

20. The U.S. Unemployment Rate25 20 15 10 5
1930 40 50 60 70 80 90 00

21. What are the types of unemployment?
Seasonal
Frictional
Structural
Cyclical

22. What is seasonal unemployment?
Unemployment caused by recurring changes in hiring due to changes in weather conditions

23. 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

24. Structural unemployment is
unemployment caused by factors in
the economy, including lack of
skills, changes in product demand
and technological change.

25. What is cyclical unemployment?
Unemployment caused by the lack of jobs during a recession

26. 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

27. What is considered full employment?
The natural rate of unemployment changes over time, but today it is considered to be about 5%