Business Cycles and Fluctuations. Chapter 14.
Phases of the Business Cycle. <ul><li>Trough. </li></ul><ul><li>Expansion. </li></ul><ul><li>Peak. </li></ul><ul><li>Contr...
Sources of Unemployment <ul><li>Frictional </li></ul><ul><li>Seasonal </li></ul><ul><li>Structural </li></ul><ul><li>Cycli...
Frictional Unemployment <ul><li>Caused by time required to bring together labor suppliers and labor demanders </li></ul><u...
Seasonal Unemployment <ul><li>Caused by seasonal changes in labor demand during the year </li></ul><ul><li>To eliminate th...
Structural Unemployment <ul><li>Exists because unemployed workers often </li></ul><ul><ul><li>Do not have the skills deman...
Cyclical Unemployment <ul><li>Fluctuates with the business cycle, increasing during contractions and decreasing during exp...
 
Unemployment and the Business Cycle.
THE BUSINESS CYCLE Phases of the Business Cycle PEAK Level of business activity Time RECESSION TROUGH RECOVERY GROWTH TREND
 
 
 
 
Great Depression. 1929-1941. <ul><li>50 percent decline in G.D.P. </li></ul><ul><li>800 percent rise in unemployment. </li...
Causes of the Great Depression. <ul><li>Disparity between rich and poor. </li></ul><ul><li>Too easy credit. </li></ul><ul>...
Banks Still Fail Today.
 
 
 
 
 
 
UNEMPLOYMENT Unequal Burdens of Unemployment  <ul><li>Occupation </li></ul><ul><li>Age </li></ul><ul><li>Race and Ethnicit...
Unemployment Rates for Various Groups
Full Employment <ul><li>Occurs only if there is no cyclical unemployment  </li></ul><ul><ul><li>Occurs when the only unemp...
UNEMPLOYMENT Measurement of Unemployment, 2002  Total Population 288,600,000 Labor force 142,500,000 74,700,000 71,400,000...
The U.S. Unemployment Rate Since 1900
 
INFLATION Defined and Measurement <ul><li>A rising general level of prices </li></ul><ul><li>Rate of inflation calculated ...
 
Inflation. Creeping or normal inflation. 1-3 percent a year.  Why must we have some inflation for a healthy economy? Gallo...
Consumer Price Index Since 1913
CPI Since 1913 – Annual Percentage Change
Inflation Across Countries   Inflation Rates in Major Economies Have Trended Lower Over the Past Two Decades
Is it Good or Bad? <ul><li>Inflation is not bad if it occurs at a low predictable rate; acceptable is 2-3% </li></ul><ul><...
Inflation <ul><li>Inflation : a sustained increase in the average price level </li></ul><ul><li>Hyperinflation :  extremel...
 
REDISTRIBUTIVE EFFECTS OF INFLATION <ul><li>Who is Hurt by Inflation? </li></ul><ul><ul><li>Fixed-Income Receivers </li></...
 
 
<ul><li>Who is less hurt or helped by Inflation? </li></ul><ul><ul><li>Flexible-Income earners. </li></ul></ul><ul><ul><li...
Causes of Inflation? “TOO much money chasing TOO  few goods and services.”
Inflation Causes Continued…. Cost-Push inflation. Demand-Pull Inflation.
Causes of Inflation <ul><li>Labor costs rising faster than productivity </li></ul><ul><li>Rising raw-material costs </li><...
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USH Chapter 14.

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USH Chapter 14.

  1. 1. Business Cycles and Fluctuations. Chapter 14.
  2. 2. Phases of the Business Cycle. <ul><li>Trough. </li></ul><ul><li>Expansion. </li></ul><ul><li>Peak. </li></ul><ul><li>Contraction. </li></ul><ul><li>Recession: Two back to back quarters declining G.D.P </li></ul><ul><li>Depression: Three consecutive declining quarters in a row. </li></ul>
  3. 3. Sources of Unemployment <ul><li>Frictional </li></ul><ul><li>Seasonal </li></ul><ul><li>Structural </li></ul><ul><li>Cyclical </li></ul>
  4. 4. Frictional Unemployment <ul><li>Caused by time required to bring together labor suppliers and labor demanders </li></ul><ul><ul><li>Employers need time to learn about the talent available </li></ul></ul><ul><ul><li>Job seekers need time to learn about employment opportunities </li></ul></ul><ul><li>Generally short-term and voluntary </li></ul>
  5. 5. Seasonal Unemployment <ul><li>Caused by seasonal changes in labor demand during the year </li></ul><ul><li>To eliminate the impact of such changes, monthly unemployment statistics are seasonally adjusted, which smoothes out these factors </li></ul>
  6. 6. Structural Unemployment <ul><li>Exists because unemployed workers often </li></ul><ul><ul><li>Do not have the skills demanded by employers, or </li></ul></ul><ul><ul><li>Do not live where their skills are in demand </li></ul></ul><ul><li>Occurs because changes in tastes, technology, taxes, or competition reduce the demand for certain skills and increase the demand for other skills </li></ul>
  7. 7. Cyclical Unemployment <ul><li>Fluctuates with the business cycle, increasing during contractions and decreasing during expansions </li></ul><ul><li>Government policies to stimulate aggregate demand recessions is aimed at reducing this type of unemployment </li></ul>
  8. 9. Unemployment and the Business Cycle.
  9. 10. THE BUSINESS CYCLE Phases of the Business Cycle PEAK Level of business activity Time RECESSION TROUGH RECOVERY GROWTH TREND
  10. 15. Great Depression. 1929-1941. <ul><li>50 percent decline in G.D.P. </li></ul><ul><li>800 percent rise in unemployment. </li></ul><ul><li>Average manufacturing wages went from 55 cents an hour to five cents! </li></ul><ul><li>Many bank failed. </li></ul><ul><li>25 percent unemployment. </li></ul>
  11. 16. Causes of the Great Depression. <ul><li>Disparity between rich and poor. </li></ul><ul><li>Too easy credit. </li></ul><ul><li>Withdrawal of U.S. foreign loans. </li></ul><ul><li>Higher American tariffs. </li></ul><ul><li>Bad banks loans to investors, buying on margin, and foreign countries. </li></ul>
  12. 17. Banks Still Fail Today.
  13. 24. UNEMPLOYMENT Unequal Burdens of Unemployment <ul><li>Occupation </li></ul><ul><li>Age </li></ul><ul><li>Race and Ethnicity </li></ul><ul><li>Gender </li></ul><ul><li>Education </li></ul>
  14. 25. Unemployment Rates for Various Groups
  15. 26. Full Employment <ul><li>Occurs only if there is no cyclical unemployment </li></ul><ul><ul><li>Occurs when the only unemployment is frictional, structural, or seasonal </li></ul></ul><ul><ul><li>Does not mean zero unemployment </li></ul></ul><ul><ul><li>Frictional, seasonal, and structural unemployment can still occur </li></ul></ul><ul><li>Occurs when from 4% to 6% of the labor force is unemployed </li></ul>
  16. 27. UNEMPLOYMENT Measurement of Unemployment, 2002 Total Population 288,600,000 Labor force 142,500,000 74,700,000 71,400,000 8,300,000 134,200,000 Employed Not in labor force Under 16 and/or institutionalized Unemployed
  17. 28. The U.S. Unemployment Rate Since 1900
  18. 30. INFLATION Defined and Measurement <ul><li>A rising general level of prices </li></ul><ul><li>Rate of inflation calculated using index numbers </li></ul>Consumer Price Index = Price of the same market basket in 1982-1984 x 100 CPI Price of most recent market basket in the particular year
  19. 32. Inflation. Creeping or normal inflation. 1-3 percent a year. Why must we have some inflation for a healthy economy? Galloping inflation. 100-300 percent per year. Hyperinflation or 500 percent a year.
  20. 33. Consumer Price Index Since 1913
  21. 34. CPI Since 1913 – Annual Percentage Change
  22. 35. Inflation Across Countries Inflation Rates in Major Economies Have Trended Lower Over the Past Two Decades
  23. 36. Is it Good or Bad? <ul><li>Inflation is not bad if it occurs at a low predictable rate; acceptable is 2-3% </li></ul><ul><li>If wages increase at a rate that maintains PPP, then it is also not bad. </li></ul><ul><li>Older people are more sensitive to inflation. </li></ul><ul><li>Hyperinflation is bad. </li></ul><ul><li>Deflation can also be either. </li></ul>
  24. 37. Inflation <ul><li>Inflation : a sustained increase in the average price level </li></ul><ul><li>Hyperinflation : extremely high inflation </li></ul><ul><li>Deflation : a sustained decline in the average price level </li></ul><ul><li>Disinflation : a reduction in the rate of inflation </li></ul>
  25. 39. REDISTRIBUTIVE EFFECTS OF INFLATION <ul><li>Who is Hurt by Inflation? </li></ul><ul><ul><li>Fixed-Income Receivers </li></ul></ul><ul><ul><li>Savers </li></ul></ul><ul><ul><li>Creditors </li></ul></ul><ul><ul><li>Want to be home owners. </li></ul></ul>
  26. 42. <ul><li>Who is less hurt or helped by Inflation? </li></ul><ul><ul><li>Flexible-Income earners. </li></ul></ul><ul><ul><li>Cost of Living Adjustments (COLAs) </li></ul></ul><ul><ul><li>Debtors </li></ul></ul><ul><ul><li>Tangible asset holders. </li></ul></ul>
  27. 43. Causes of Inflation? “TOO much money chasing TOO few goods and services.”
  28. 44. Inflation Causes Continued…. Cost-Push inflation. Demand-Pull Inflation.
  29. 45. Causes of Inflation <ul><li>Labor costs rising faster than productivity </li></ul><ul><li>Rising raw-material costs </li></ul><ul><li>Depreciation of the dollar </li></ul><ul><li>Increased money supply </li></ul><ul><li>Low interest rates. </li></ul><ul><li>Increased consumer spending. </li></ul><ul><li>Increased gov’t spending. </li></ul>

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