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USH Chapter 14.

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  • 1. Business Cycles and Fluctuations. Chapter 14.
  • 2. Phases of the Business Cycle.
    • Trough.
    • Expansion.
    • Peak.
    • Contraction.
    • Recession: Two back to back quarters declining G.D.P
    • Depression: Three consecutive declining quarters in a row.
  • 3. Sources of Unemployment
    • Frictional
    • Seasonal
    • Structural
    • Cyclical
  • 4. Frictional Unemployment
    • Caused by time required to bring together labor suppliers and labor demanders
      • Employers need time to learn about the talent available
      • Job seekers need time to learn about employment opportunities
    • Generally short-term and voluntary
  • 5. Seasonal Unemployment
    • Caused by seasonal changes in labor demand during the year
    • To eliminate the impact of such changes, monthly unemployment statistics are seasonally adjusted, which smoothes out these factors
  • 6. Structural Unemployment
    • Exists because unemployed workers often
      • Do not have the skills demanded by employers, or
      • Do not live where their skills are in demand
    • Occurs because changes in tastes, technology, taxes, or competition reduce the demand for certain skills and increase the demand for other skills
  • 7. Cyclical Unemployment
    • Fluctuates with the business cycle, increasing during contractions and decreasing during expansions
    • Government policies to stimulate aggregate demand recessions is aimed at reducing this type of unemployment
  • 8.  
  • 9. Unemployment and the Business Cycle.
  • 10. THE BUSINESS CYCLE Phases of the Business Cycle PEAK Level of business activity Time RECESSION TROUGH RECOVERY GROWTH TREND
  • 11.  
  • 12.  
  • 13.  
  • 14.  
  • 15. Great Depression. 1929-1941.
    • 50 percent decline in G.D.P.
    • 800 percent rise in unemployment.
    • Average manufacturing wages went from 55 cents an hour to five cents!
    • Many bank failed.
    • 25 percent unemployment.
  • 16. Causes of the Great Depression.
    • Disparity between rich and poor.
    • Too easy credit.
    • Withdrawal of U.S. foreign loans.
    • Higher American tariffs.
    • Bad banks loans to investors, buying on margin, and foreign countries.
  • 17. Banks Still Fail Today.
  • 18.  
  • 19.  
  • 20.  
  • 21.  
  • 22.  
  • 23.  
  • 24. UNEMPLOYMENT Unequal Burdens of Unemployment
    • Occupation
    • Age
    • Race and Ethnicity
    • Gender
    • Education
  • 25. Unemployment Rates for Various Groups
  • 26. Full Employment
    • Occurs only if there is no cyclical unemployment
      • Occurs when the only unemployment is frictional, structural, or seasonal
      • Does not mean zero unemployment
      • Frictional, seasonal, and structural unemployment can still occur
    • Occurs when from 4% to 6% of the labor force is unemployed
  • 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
  • 28. The U.S. Unemployment Rate Since 1900
  • 29.  
  • 30. INFLATION Defined and Measurement
    • A rising general level of prices
    • Rate of inflation calculated using index numbers
    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
  • 31.  
  • 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.
  • 33. Consumer Price Index Since 1913
  • 34. CPI Since 1913 – Annual Percentage Change
  • 35. Inflation Across Countries Inflation Rates in Major Economies Have Trended Lower Over the Past Two Decades
  • 36. Is it Good or Bad?
    • Inflation is not bad if it occurs at a low predictable rate; acceptable is 2-3%
    • If wages increase at a rate that maintains PPP, then it is also not bad.
    • Older people are more sensitive to inflation.
    • Hyperinflation is bad.
    • Deflation can also be either.
  • 37. Inflation
    • Inflation : a sustained increase in the average price level
    • Hyperinflation : extremely high inflation
    • Deflation : a sustained decline in the average price level
    • Disinflation : a reduction in the rate of inflation
  • 38.  
  • 39. REDISTRIBUTIVE EFFECTS OF INFLATION
    • Who is Hurt by Inflation?
      • Fixed-Income Receivers
      • Savers
      • Creditors
      • Want to be home owners.
  • 40.  
  • 41.  
  • 42.
    • Who is less hurt or helped by Inflation?
      • Flexible-Income earners.
      • Cost of Living Adjustments (COLAs)
      • Debtors
      • Tangible asset holders.
  • 43. Causes of Inflation? “TOO much money chasing TOO few goods and services.”
  • 44. Inflation Causes Continued…. Cost-Push inflation. Demand-Pull Inflation.
  • 45. Causes of Inflation
    • Labor costs rising faster than productivity
    • Rising raw-material costs
    • Depreciation of the dollar
    • Increased money supply
    • Low interest rates.
    • Increased consumer spending.
    • Increased gov’t spending.