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Unemployment & Business Cycle

Unemployment & Business Cycle. Business Cycle. Causes. Irregularities of Investment Change in productivity Changes in total spending Durable goods are most susceptible to affects of business cycle. Why?. GDP and Business Cycle. Unemployment. Under 16/ institutionalized 74.7 mil.

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Unemployment & Business Cycle

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  1. Unemployment & Business Cycle

  2. Business Cycle Causes • Irregularities of Investment • Change in productivity • Changes in total spending • Durable goods are most susceptible to affects of business cycle. Why?

  3. GDP and Business Cycle

  4. Unemployment Under 16/ institutionalized 74.7 mil • Labor Force • People who are able and willing to work • About 50% of population • Total U.S. population split into 4 groups • Under 16 or institutionalized • “Not in labor force” • Discouraged workers • College students, homemakers, retirees • Employed • Work at least 1 hr in 2 weeks • Unemployed • Not worked in past 2wks-12 months “Not in labor force” 71.4 mil Total Population: 288.6 Million Employed 134.2 mil Unemployed 8.3 mil

  5. Current Unemployment Data • Unemployment Rate (u%)= 9% (bls.gov), 9.8% (gallup poll) • Not in Labor Force: +3% • Discouraged workers: +50%

  6. Types of Unemployment • Frictional • “Between jobs” • Voluntary move or fired/laid off • Changes from month-month are inevitable • Frictional—market does not operate perfectly

  7. Types. . . • Seasonal • Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc. • Structural • Lack of skills or decline in industry • i.e. High School drop-out, typewriter repairman • Think “Creative Destruction” • Geographical • Migration of industry • Overseas, urban to suburban

  8. Types. . . • Cyclical • Higher unemployment from decline in spending • Recessionary phase • Most serious problem

  9. Full Employment • No Cyclical Unemployment • Level of unemployment when economy is at full potential • Best known as: Natural Rate of Unemployment (NRU) • Approx. 4-5%

  10. Why Unemployment is bad Okun’s Law: (Arthur Okun) • Every 1% increase in u% causes 2% decrease in GDPr

  11. UR Practice Determine which of the following are unemployed. • If unemployed, then determine the type of unemployment. • If not unemployed, then write down ‘not in labor force.’ • Arvod cannot find work as a mall Santa in January. • Beulah leaves her job to become a stay at home mom. • Grover is laid off of work when the economy experiences a recession. • Tuabuludropped out of his G.E.D. program and has difficulty finding work. • Boris, the human calculator, is replaced by the TI-83. • Nimrod leaves his job as a teacher to look for work in the fast food industry. • Queen Oli-go-poly graduates from college and begins looking for work. • Kimplehas difficulty finding a job as a life guard after Labor Day. • Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He has difficulty finding a girlfriend. • NebulusArtaxerxes Johnson cannot find work in the typewriter repair industry.

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