Deck 9: Business Cycles, Unemployment, and Inflation

Question 1

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 1

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 2

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.

Answer 2

(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?
(a)The labour force increased more than employment increased.
(b)Yes,the unemployment rate of 6.9% is within the 6-7% range considered to be full employment.
(c)The number of people looking for work expands.

Question 3

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.

Answer 3

The immediate cause of most cyclical changes is unexpected changes in total spending in the face of fixed (or "sticky")prices.When spending unexpectedly increases and prices are sticky,people buy more goods and services meaning output and employment increase leading to an expansion of the economy.On the other hand,when spending unexpectedly falls (as it did during the financial crisis that was revealed in the United States in 2008)and prices are sticky,people suddenly buy less goods and services causing increasing inventories,a decline in production,and consequently higher unemployment.Eventually prices adjust pulling us back to the long-run trend.

Question 4

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

Question 5

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 6

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

Question 7

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 8

What is inflation and how is it measured?

Question 9

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

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Explain the concept of Core Inflation

Question 24

What is "demand-pull" inflation?

Question 25

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

Question 26

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

Question 27

The table below shows the price index in the economy at the end of four different years.

Question 28

Describe cost-push inflation and its major source.

Question 29

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

Question 30

Explain the difference between nominal and real interest rates.

Question 31

What is hyperinflation and what are its effects?

Question 32

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

Question 33

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 34

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

Question 35

Answer the next four questions based on the following data using year 1 as the base year.All dollars are in billions.

Question 36

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 37

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?