1. Copyright ©2003, South-Western College Publishing Contemporary Economics: An Applications Approach By Robert J. Carbaugh 2nd Edition Chapter 11: The Business Cycle, Unemployment, and Inflation

2. Carbaugh, Chap. 11 2 The business cycle Business Cycles Real GDP Recession Trough Recovery Peak Real GDP Full Cycle

3. Carbaugh, Chap. 11 3 DurationPercentage declinePeak Periodin monthsin real GDPunemployment rate Postwar recessions for the US Business Cycles 194911-2.0%7.9% 1953-5410-3.06.1 1957-588-3.57.5 1960-6110-1.07.1 1969-7011-1.16.1 1973-7516-4.39.0 19806-2.47.8 1981-8216-3.410.8 1990-919-1.27.1 Average11-2.47.1 Source:Economic Report of the President, 1993

4. Carbaugh, Chap. 11 4 The burdens of unemployment in 2000 Unemployment Overall4.0% Gender Male4.1 Female3.9 Race White3.5 Black6.5 Age White 16-19 years12.6 20 years and over3.0 Black 16-19 years20.9 20 years and over6.8 Average duration of unemployment: 12.8 weeks Unemployment rates by demographic characteristics (percent) Source: Economic Report of the President, 2001; Federal Reserve Bulletin, June 2001

5. Carbaugh, Chap. 11 5 Unemployment rates around the world, 2000 Unemployment United States4.0% Canada5.7 Australia8.1 Japan4.8 France9.2 Germany8.1 Italy10.1 Sweden5.2 United Kingdom5.3 Source: US Dept. of Labor, Bureau of Labor Statistics web site Unemployment Countryrate

6. Carbaugh, Chap. 11 6 A D0D0 C S0S0 Flexible wages D1D1 Hourly wage rate ($) Rigid wages can result in involuntary unemployment Unemployment A D0D0 B S0S0 Inflexible wages D1D1 Hourly wage rate ($)

7. Carbaugh, Chap. 11 7 Impact of inflation on the real value of $10,000 Inflation Year2 percent4 percent6 percent8 percent10 percent 2000$10,000$10,000$10,000$10,000$10,000 2001$9,800$9,620$9,430$9,260$9,090 2002$9,610$9,250$8,900$8,570$8,260 2003$9,420$8,890$8,400$7,940$7,510 2004$9,240$8,550$7,920$7,350$6,830 2005$9,060$8,220$7,470$6,810$6,210 2006$8,880$7,900$7,050$6,300$5,640 2007$8,710$7,600$6,650$5,830$5,130 2008$8,530$7,310$6,270$5,400$4,670 2009$8,370$7,030$5,920$5,000$4,240 2010$8,200$6,760$5,580$4,630$3,860 Annual Inflation Rate

8. Carbaugh, Chap. 11 8 Inflation rates in selected countries, 2000 Inflation Ecuador101% Turkey51 Poland37 Venezuela16 Mexico9 Greece5 Canada3 Germany2 United Kingdom2 Japan-2 Source: International Monetary Fund, International Financial Statistics, June 2001 Inflation Countryrate

9. Carbaugh, Chap. 11 9 US Consumer Price Index Inflation YearsAverage annual inflation rate 1960-641.3% 1965-693.5 1970-746.1 1975-798.1 1980-847.5 1985-893.6 1990-943.5 1995-992.4 20003.2 Source: Economic Report of the President YearCPI 1990130.7 1991136.2 1992140.3 1993144.5 1994148.2 1995152.4 1996156.9 1997160.5 1998163.0 1999166.6 2000172.0 US inflation rate as measured by the CPI, 1960-2000 Consumer price index for selected years (1982-84=100)

10. Carbaugh, Chap. 11 10 19915.4%3.1%2.3% 19923.52.90.6 19933.02.70.3 19944.32.71.6 19955.52.53.0 19965.03.31.7 19975.01.73.3 19984.81.63.2 19994.72.72.0 20005.83.21.6 * 3-month Treasury bills NominalInflationReal Yearinterest rate*rateinterest rate Nominal and real interest rates, 1991-2000 Inflation Source:Economic Report of the President, various issues; Federal Reserve Bulletin

11. Carbaugh, Chap. 11 11 Work-time cost of products, today vs. yesterday Cost of Living Product/yearpercentProduct/yearpercent Cruise (1972)88.2Hershey bar (1900)10.1 Pizza (1958)87.7Dryer (1940)9.6 New home (1920)71.8VCR (1978)9.4 Movie (1917)65.6Chicken (1919)9.2 Auto rental (1970)62.2Microwave (1967)8.5 Suit (1927)50.6Coke (1900)7.5 Dry cleaning (1946)42.2Range (1910)6.4 Big Mac (1940)33.0Dishwasher (1913)5.6 Levi's (1897)32.2Contacts (1971)4.2 Automobile (1908)29.1Color TV (1954)4.1 Camcorder (1988)28.5Calculator (1972)2.5 Gasoline (1920)17.5Cellular phone (1984)2.0 Washer (1911)13.0Computing (1984)0.6 Source: Federal Reserve Bank of Dallas, 1997 Annual Report