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Business Cycle and Unemployment Report


Describe and define the three phases of the Business Cycle

The business cycle may either go through a recession, recovery and a boom in the business cycle. During the recession phase, the real GDP of the economy will have declined to the bottom but this must have taken place for six months before it can officially be declared to be a recession (Shafrin, 67). In the graphical representation of the business cycle (which is a plot of real GDP against time (In quarters or months), this period is often seen as a trough.

The other phase is the recovery phase which occurs after the recession and is seen by a steady rise on GDP. Finally, any business cycle will also have a boom which a period characterized by high capital. It will contain high instances of inflation which will necessitate the need to lower interest rates. Booms arise when excess capital is contained in the market and these drive up asset prices (Slavin, 217).

The economy and phase of the business cycle

Currently, the US economy is in the recovery rate. The worst of the recession may be offered because some of the leading indicators appear to be increasing. The most important economic indicator is the GDP. In 2010, it was at 14.72 trillion dollars which was an increase of 0.39 trillion dollars from the previous year. A rise in purchasing power parity is always synonymous to a recovery. Furthermore, inflation rates have increased from -0.3% to 1.4% between 2009 to 2010. A rising inflation rate is indicative of greater prevalence of capital assets in the economy. Also unemployment went down by 0.4% between the years 2010 and 2011.

Leading economic indicators

There are over 20 economic indicators but the most significant ones are about five. The first being the GDP which is a measure of a country’s wealth through the series of services and goods produced. Consumer price index refers to changes in prices that consumers paid for. Producer Price Index on the other hand indicates the amount that producers receive for their goods and indicates the cost of living. This is seen as an important measure of inflation. Money supply is an important measure as it denotes the total amount of money in the economy. Consumer confidence survey looks as public optimism about the economy.

Current employment rate indicate the status of the labor force through employment and unemployment numbers. The Retail sales index is a measure of personal consumption. The S and P 50 stock index illustrates performance of 500 public stocks and is an important predictor of future consumer confidence levels. Housing starts is a measure of new constructions and is important because mortgage rates are highly related to interest rates. Trade inventories and manufacturing sales are also crucial as they measure trade values of shipments in manufacturing, wholesale and retail (Shaffrin, 46).

Who compiles the most widely-used forecasting device on a monthly basis?

The most widely used forecasting device is the consumer confidence survey which is released on a monthly basis by the Conference board. As mentioned earlier, this is an assessment of the degree of public confidence in the status of the US economy. It predicts the level of consumer spending because if consumers are not confident in the economy then they are unlikely to spend.

In three or four sentences, answer the following question: What is the Conference Board?

The conference board is a nongovernmental organization that was formed in 1916 in order to deal with declining confidence in the economy. The Conference board is mandated to carry out research on business trends and the economy. the six categories that it carries out research include corporate citizenship, corporate governance, economics (including consumer confidence index, business cycle indicators and Help wanted advertising index), human resources, marketing communications and strategy planning.

What are the three types of unemployment that figure into total unemployment

The three types of unemployment include frictional unemployment, structural unemployment and cyclical unemployment. Frictional unemployment refers to that kind of arrangement in which a person is not looking for a job but is not working as well because he or she is waiting to start; a situation that arises out of relocation or new admissions. Structural unemployment refers to a situation in which a worker is not working because he or she has been displaced by a newer technology or by a new invention in the market. Lastly, cyclical unemployment refers to those people who lose jobs as a result of economic conditions such as the recent recessions.

What is meant by Natural Unemployment?

Natural unemployment comes from full employment. When unemployment levels correspond to structural and frictional employment brought on by worker transitions and entry of new members into the labor market then chances this becomes natural unemployment (Shaffrin, 45).

What is meant by full employment for our US economy?

Full employment denotes a situation in which the economy it at full capacity. In other words, no cases of cyclical unemployment should exist such that people are only unemployed because of frictional unemployment or structural unemployment. A percentage of 94% of the labor force need to b employed in order to claim that full employment exists.

If the unemployment rate is 7 percent, how much is the cyclical unemployment?

Cyclical unemployment may best be understood as the difference between unemployment and natural unemployment. Frictional and structural employment account for 6% unemployment. Unemployment rate=structural+frictional+cyclical unemployment

7%=6%+cyclical unemployment

Cyclical employment=1%

Problem No. b: Compute the unemployment rate given the following information: 8 million unemployed, 117 million employed.

Unemployment rate=number of employed people / labor force*100.

Labor force=number of employed +unemployed persons = 117,000,000 + 8,000,000 = 125,000,000. Therefore unemployment rate=8,000,000/125,000,000=6.4%

Problem No. c: Given the following information, how many people are in the labor force? Information: 3 million people are collecting unemployment insurance; 7 million people are officially unemployed; 2 million people are discouraged workers; and 110 million people are employed. Show the computation fully.

Discouraged workers are those people who do not fall in the labor force (Slavin, 223)i.e. they are neither employed (in a paid job or family business or absent from work due to illness) or unemployed (actively looking for work or laid off and maybe recalled) so they cannot be included in these calculations. Additionally, people collecting unemployment insurance are also not a reliable measure for unemployment because some may still be collecting checks when they are still engaging in some other form of part time business. Usually official figures are the ones that count. Labor force=Employed +unemployed=7,000,000+110,000,000=117,000,000 are in the labor force.

Unemployed means different things to different people

As a result of the recession, person Y who worked for General motors has been laid off. General motors laid off workers because of the changes in economic conditions that caused it cut down on costs. Person Y is therefore cyclically unemployed because he will get back to work as soon as the economy recovers. Person W is a fresh graduate who has just gone through an interview and is waiting for processing of his health report before he can commence work.

This is a case of frictional unemployment because Person W is not looking for work actively but is simply waiting to clear all formalities before he can start. Person T is a housewife who used to work for a calling centre. Her department was outsourced to India and she is now jobless. In fact, most of her peers in this industry are going through the same predicament and it is unlikely that she will get any such job in the US again. This is case of structural unemployment.

In the articles listed in your Research Site List found in Course Documents, what one specific job added approximately 400,000 jobs in the Spring of 2010?

These were jobs in census hiring. Since the census is only a periodical thing and it is not something that will last. They should not have been included in raising employment numbers because they were only to do this in the short term. They are not like the usual part time workers who find employment in restaurants and other permanent businesses. The census is administered once in a couple of years so they will remain unemployed for a very long time.

What is the current unemployment rate as stated by the Federal Government

In the month of May 2011, it was asserted that the US unemployment rate is 9.1% (BLS, 13). Some economists affirm that the true unemployment rate is much higher because the number often excludes the discouraged workers who quite looking for work. in reality, discouraged workers are still not contributing actively in the economy so they are still unemployed. When long term discouraged workers are not counted then this makes the estimates quite inaccurate

Works Cited

US Bureau of labor and statistics. US unemployment rate. May 2011. BLS report. 2011.

Sheffrin, Steven. Economics: principles in action. NJ: Pearson, 2003.

Slavin, Steven. Economics. NY: McGrawhill publishers , 2009.

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