Deck 9: A: Business Cycles, Unemployment, and Inflation

Question 1

What phase of the business cycle is the Canadian and your provincial economy experiencing at the present time? Justify your answer.

Answer 1

This question might best be given as a group assignment or as an exam question that students are notified of in advance.Direct your students to the current news media.In particular, The Globe and Mail and the National Post have frequent articles on the state of the economy.Even without reading any articles, students could surmise the phase by finding out the current inflation and unemployment rates and/or finding information on the latest report of "leading indicators," and comparing this information to similar statistics from the recent past.If possible, have students visit the Bank of Canada website (http://www.bankofcanada.ca/) and Statistics Canada's website (http://www.statcan.gc.ca/start-debut-eng.html).They may also have access to the CANSIM database through your library.

Question 2

How is the unemployment rate affected if employment increases from 9 million to 9.5 million and the labour force increases from 10 million to 11 million?

Answer 2

Although employment has increased, the unemployment rate is higher since unemployment has increased by a greater proportion than the labour force.When 9 million were employed, the unemployment rate was 10% [(10 - 9)/10].When 9.5 million are employed, the unemployment is 13.6% [(11 - 9.5)/11].

Question 3

Explain the differences among the frictional, structural, cyclical, and seasonal forms of unemployment.

Answer 3

Frictional unemployment is the unavoidable and even positive type of unemployment characterized by people who are searching for new jobs or their first job or waiting to take jobs in the near future.Structural unemployment is unemployment due to changes occurring over time in the structure of consumer demand or in technology which result in some skills being in less demand or even becoming obsolete.It may also be due to a change in the geographic distribution of job opportunities.Cyclical unemployment is the unemployment caused by the recession phase of the business cycle.Economists place special emphasis on this type of unemployment because they believe that economic policy can reduce cyclical fluctuations in the economy and therefore can reduce cyclical unemployment.Seasonal unemployment occurs because some industries (e.g., forestry, fishing, tourism, construction) effectively shut down for part of the year, often due to weather.

Question 4

Discuss the unequal burden of unemployment for different demographic groups in Canada.

Question 5

In the table below are statistics showing the labour force and total employment during year 1 and year 5.Make the computations necessary to complete the table. (a) How is it possible that both employment and unemployment increased?
(b) Would you say that year 5 was a year of full employment?
(c) Why is the task of maintaining full employment over the years more than just a problem of finding jobs for those who happen to be unemployed at any given time?

Question 6

What are the economic and non-economic costs of unemployment?

Question 7

"The economic cost of unemployment is measured by the GDP gap." Explain this statement.

Question 8

What is Okun's law? Give an example of how it works.

Question 9

"The increasing importance of durable goods has made our economy more vulnerable to cyclical fluctuations." Explain and evaluate.

Question 10

What are two criticisms of the unemployment rate? How do these criticisms relate to the overstating or understating of the unemployment rate?

Question 11

Use the following data to calculate: (a) the size of the labour force and (b) the official unemployment rate.Total population 1,500; population under age 15 and institutionalized, 360; not in labour force, 450; unemployed, 69; workers with part-time jobs who are looking for full-time jobs, 30.

Question 12

What is inflation and how is it measured?

Question 13

According to most economists, what is the immediate cause of the business cycle? Give an example of how this causes expansion and contraction in the business cycle.

Question 14

Calculate the rate of inflation between Year 1 and Year 2.The price index in Year 1 was 124.0.It was 130.7 in Year 2.

Question 15

If the population is 26.7 million, the labour force is 13.6 million, and the number measured as unemployed is 0.68 million, what is the rate of unemployment?

Question 16

Define the "full-employment" or "natural" rate of unemployment and give its approximate percentage rate as economists currently define it.

Question 17

What is meant by the term business cycle? List the four phases of the business cycle.

Question 18

Why might the unemployment rate increase when the economy moves into its recovery phase?

Question 19

In the table below are statistics showing the labour force and total employment in month 1 and month 2 of the same year.Make the computations necessary to complete the table.

Question 20

Which types of industries are hit hardest by a recession? Explain.

Question 21

What is hyperinflation and what are its effects?

Question 22

How has the rate of inflation in Canada changed in the past five decades?

Question 23

Answer the next four questions based on the following data using year 1 as the base year.All dollars are in billions. (a) Find real income in year 4.(b) What was the percentage rise in prices between years 1 and 3?
(c) What was the percentage rise in prices between years 2 and 4?
(d) What was the increase in real income from year 3 to year 4 in %?

Question 24

"Inflation is a harsh and arbitrary form of taxation." Do you agree? If so, who pays this tax?

Question 25

Explain the difference between real and nominal income.How can you get an approximation of the percentage change in real income from one-time period to another?

Question 26

Inflation is frequently described as "too much money chasing too few goods." Is this an acceptable definition?

Question 27

Evaluate the statement: "Inflation only benefits the rich."

Question 28

Some economists believe that moderate inflation cannot be accepted because a gradual increase in prices leads to an ever-rising rate of inflation.Other economists argue that in order to achieve rapid economic growth, some moderate price increases are necessary, and that rigid price stability would cause considerable unemployment.Contrast and evaluate these two points of view.

Question 29

Explain the difference between nominal and real interest rates.

Question 30

Describe and explain what is meant by clipping coins, from an economic perspective.

Question 31

Describe cost-push inflation and its major source.

Question 32

Evaluate the statement: "Anticipated inflation is not too much a problem."

Question 33

Describe and explain the specter of deflation.

Question 34

Explain the concept of Core Inflation

Question 35

How does inflation affect the economy's real level of output and why does output change in this way?

Question 36

What is "demand-pull" inflation?

Question 37

Describe and explain what is meant by downward sticky wages and unemployment.

Question 38

Explain how policy makers Core Inflation data to assess whether any deliberate changes are in polices aimed at achieving acceptable levels of Inflation.

Question 39

Assume that nominal income is $35,000 and the price index is 1.20 in year 1.In year 2, nominal income rises to $38,000 and the price index rises to 1.25.What was the percentage change in real income from year 1 to year 2? What was the absolute amount of increase in real income? Make your calculations of the percentage change in real income and the absolute change in real income using the approximation formula and using the more precise method with index numbers.

Question 40

The table below shows the price index in the economy at the end of four different years. (a) What is the rate of inflation in years 2, 3, and 4?
(b) Using the "rule of 70," determine how many years would it take for the prices to double at each of these three inflation rates?