Economics 8: The Business Cycle & Inflation
Business cycles: fluctuations in real GDP and employment market economies experience over
time
Stages of business cycle:
Recession: When real GDP falls for two
consecutive quarters
Expansion: Occurs when output is rising
Peak: The point of a business cycle at which
expansion ends and a recession begins
Trough: The point of a business cycle when a
recession ends and an expansion begins
Depression: severe recession
Labor force: consist of noninstitutionalized persons
aged 16 or above who are working or seeking work
Persons are unemployed if they are not working for pay but are seeking work
Unemployment defined:
Unemployment rate rises during recessions and
falls during expansions
Discouraged workers: unemployed workers who become
discouraged (declines unemployment rate)
Labor force participation rate increases during expansions
and decreases during recessions
Underemployed workers (part-time) are considered employed, understating the
problem of unemployment. Unemployment may be overstated by underground
economy.
Types of unemployment:
Seasonal: workers in industries with seasonal variations in demand for labor (primary
school teachers)
Frictional: workers looking for their first job, or who quit their jobs to find a better job
(search unemployment)
Structural: workers lose jobs due to technological changes or changes in the demand for
final output
Cyclical: people who lose their jobs because economy enters a recession
Costs of unemployment experienced by society as increases in suicide rates, alcohol abuse,
crime
GDP gap: major cost
Psychological costs for unemployed workers and families
Before women had higher unemployment rates than men
Business cycles: fluctuations in real GDP and employment market economies experience over
time
Stages of business cycle:
Recession: When real GDP falls for two
consecutive quarters
Expansion: Occurs when output is rising
Peak: The point of a business cycle at which
expansion ends and a recession begins
Trough: The point of a business cycle when a
recession ends and an expansion begins
Depression: severe recession
Labor force: consist of noninstitutionalized persons
aged 16 or above who are working or seeking work
Persons are unemployed if they are not working for pay but are seeking work
Unemployment defined:
Unemployment rate rises during recessions and
falls during expansions
Discouraged workers: unemployed workers who become
discouraged (declines unemployment rate)
Labor force participation rate increases during expansions
and decreases during recessions
Underemployed workers (part-time) are considered employed, understating the
problem of unemployment. Unemployment may be overstated by underground
economy.
Types of unemployment:
Seasonal: workers in industries with seasonal variations in demand for labor (primary
school teachers)
Frictional: workers looking for their first job, or who quit their jobs to find a better job
(search unemployment)
Structural: workers lose jobs due to technological changes or changes in the demand for
final output
Cyclical: people who lose their jobs because economy enters a recession
Costs of unemployment experienced by society as increases in suicide rates, alcohol abuse,
crime
GDP gap: major cost
Psychological costs for unemployed workers and families
Before women had higher unemployment rates than men
