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

Question 1

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.

Answer 1

(a) 690 (1,500 - 360 - 450 = 690).
(b) 10% (69/690 = 0.10; 0.10 $\times$ 100 = 10%).Ignore the part-time workers as they are counted as being employed.

Question 2

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

Answer 2

During a recovery the unemployment rate can increase as a result of an increase in frictional unemployment.Some employed workers may feel more confident in switching jobs given the improving economic and labour market conditions and thus choose to become unemployed frictionally to search for a new position.Furthermore, economic recovery may also entice discouraged workers who were not in the labour force to begin searching for work again.This surge in the unemployed can cause the unemployment rate to be higher.

Question 3

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

Answer 3

Industries specializing in consumer durable goods production and capital goods production are hardest hit.When economic activity slows, people postpone purchases of durable goods which worsens the downturn.Likewise, businesses postpone the purchase of new equipment and plant expansion if they expect a downturn.These slowdowns in business spending cause further deterioration in economic activity.

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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 12

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?

Question 13

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 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

What is inflation and how is it measured?

Question 16

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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 25

What is "demand-pull" inflation?

Question 26

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 27

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

Question 28

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 29

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

Question 30

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

Question 31

What is hyperinflation and what are its effects?

Question 32

Describe cost-push inflation and its major source.

Question 33

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?

Question 34

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 35

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

Question 36

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

Question 37

Explain the concept of Core Inflation

Question 38

Describe and explain the specter of deflation.

Question 39

Explain the difference between nominal and real interest rates.

Question 40

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