Business Cycle Intro

• GDP is Rising

• Unemployment Is Falling

• Inflation at some point begins to grow

• GDP is at its highest

• Unemployment is low

• Inflation tends to be high

• GDP is falling

• Unemployment will increase

• Inflation will eventually decrease (disinflation) and then possible deflation

• 2 Consecutive quarters of negative GDP = Recession

• GDP is at its lowest

• Unemployment is high

• Very low inflation or deflation

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• Average duration of cycle is 7-8 years

• Products that do well during a recession are necessities and cheap products

• Products that do well during an expansion are luxuries, durable goods, more expensive goods

Jobs with greatest projected growth.

• Goal is 4-6%. This is considered full employment

• Why not greater than 6%?

• Why not less than 4%

• Structural- the basis of the economy is changing.

• Frictional- In between jobs, looking for a better job, just got out of college, and looking for a job.

• Cyclical- based on changes in thh business cycle

• Seasonal- caused by a change in weather or prevailing conditions of the job.

This is just the combination of Frictional and Structural. This occurs in an economy all the time-no matter the business cycle phase. It amounts to 4-6%. That is why 4-6% is considered fully employed.

Unemployed/Labor Force

Unemployed = do not have any job AND are actively searching for a job during the last 4 weeks.

Labor Force = Unemployed + Fully Employed + Part-Time Workers

Government contacts 60,000 households for a monthly survey. Amounts to about 110,000 people.

• Discouraged Workers

• Military

• Homeless

• Full Time Students

• Institutionalized

• Retired