Fluctuations in Economic Output, Unemployment, and Inflation.
Economic Fluctuations, Unemployment, and Inflation Chapter 8.
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Transcript of Economic Fluctuations, Unemployment, and Inflation Chapter 8.
Which of the following are included in GDP?
a) Your mother-in-law buys a new car from a U.S. producer.
b) Your mother-in-law buys a new car imported from Sweden.
c) Your mother-in-law’s car rental business buys a new car from a U.S. producer.
d) Your mother-in-law’s car rental business buys a new car imported from Sweden.
e) The U.S. government buys a new domestically produced car for the use by your mother-in-law, who has been appointed the ambassador to Sweden.
U. S. Business Cycles
20
10
0
–10
–20
‘90‘801860 ‘70 1900 ‘10 ‘20 ‘30 ‘40 ‘50 ‘60 ‘70 ‘80 ‘90 ‘102000
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Civil War
Recoveryof 1895
World War I
Panicof 1893 Panic
of 1907Great
Depression
Korean War Vietnam War
World War II
Source: Economic Report of the President, various issues.
Instability in the Growth of Real GDP
Annual growth rate of real GDP
6
8
4
2
0
- 2
1960 1965 1970 1975 1980 1985 1990 1995 2000 2004
Long-run growth rate(approx. 3%)
Time
Real GDP
Business peak
Recessionary trough
Contraction Exp
ansi
on
The Hypothetical Business Cycle
Business peak
Recessionary trough
Trend line
PotentialGDP
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
Actual & Potential GDP, 1960-2003Real GDP(billions of 2000 $)
8,000
6,000
4,000
2,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2003
10,000
1970recession
1974-75recession
1980recession
1982recession
1990-91recession
2001recession
ActualGDP
1960recession
The Unemployment Rate
• Measuring UnemploymentLabor force = employed + unemployed
force labor
unemployed rate ntUnemployme
over and 16 population
force labor rate ionParticipat
Labor Force Participation Rate of Men and Women
Source: www.bls.gov.
200319751948 1960
87 % 83%74 %
33 % 38 %
46 %
58 %
––––––– Men –––––––
Labor Force Participation Rateof Men and Women: 1948-2003
–––––– Women ––––––1990 200319751948 1960 1990
78 % 76 %
60 %
U.S. Population, Employment,and Unemployment: 2004
Civilian population 16 and over
Civilian labor force
Employed• Employees • Self-employed
workers
Unemployed
• New entrants • Reentrants • Lost last job • Quit last job • Laid off
Not in the labor force
• Household workers • Students • Retirees • Disabled
Labor Force Participation Rate =
Civilian labor forceCivilian population (16+) = 66.0%
Employment / Population Ratio =
Number employedCivilian population (16+) = 62.3%
Rate ofUnemployment =
Number unemployedCivilian labor force = 5.5%
147.4 million
139.3 million
76.0 million
223.4 million
8.1 million
147.4223.4 =
139.3223.4 =
8.1147.4 =
Unemployment Rate, 2003
Source: www.bls.gov.
Allworkers
19.3 %
10.6 %
6.0 % 5.7 %
15.6 %
9.3 %
25+16-19 20-24–– Men aged ––
The Unemployment RateBy Age and Gender: 2003
Allmen
Allwomen –– Women aged ––
25+16-19 20-24
5.0 %6.3 %
4.6 %
5.1 %
8.6 %
10.6 %
4.2 %
6.5 %
10.5 %
14.6 %Spain
Italy
Germany
Japan
Average Unemployment Rate(1994-2003)
France
U.K.
U.S.
Source: Economic Outlook, OECD (June 2004).
Types of Unemployment
Frictional: worker “between jobs”
Cyclical: caused by bad economic conditions
Structural: worker’s skill set is no longer in demand
Natural Rate of Unemployment
Structural + Frictional
• Average rate of unemployment over the business cycle.
• Non-inflationary rate of unemployment.• Full-employment.• Associated with potential output.
Labor Force, unemployment rate & Participation Rate
65 people10 <16 years of age10 retired25 full-time jobs5 part-time jobs5 full-time homemakers5 full-time students over 162 disabled and cannot workRest did not have jobs but wanted one but one has
not searched in 3 months.
Inflation Since 1900
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
3020101900 40 50 60 70 80 90 2000
–10
–5
0
5
10
15
20
25
Sources: Derived from computerized data supplied by FAME ECONOMICS. Also see Economic Report of the President (annual).
The Inflation Rate, 1953-2003Inflation rate
1955 1960 1965 1970 1975 1980 1985 1990 20001995
10
5
0
15
2003
1953-1965 averageinflation rate = 1.3 %
1973-1981 averageinflation rate = 9.2 %
1983-2003 averageinflation rate = 3.1 %