Quiz 9: Business Cycles, Unemployment, and Inflation


The country's trend rate of growth over thiS10-year period is the average of the growth rates: img An expansionary phase of the business cycle is demonstrated by year 6 to year 9, when the growth rate increased. A recession phase of the business cycle is illustrated by year 1 to year 5, and year 10, when growth rates decreased.

The four phases of business cycles are: peak, recession, trough and expansion. Business cycles usually vary a lot. The table below shows the duration of several recessions in the U.S. history. From the last column of the table it is noted that the duration of business cycles are between 8 and 18 months. img Business cycles affect capital goods industries and durable goods industries more severe than nondurable goods industries because within limits, firms can postpone the purchase of capital goods. Investment in capital goods declines sharply in recession. The pattern is much the same for consumer durables such as automobiles and major appliances. Firms producing these products suffer. In contrast, nondurable consumer goods industries are somewhat insulated from the most severe effects of recession. People find it difficult to cut back on needed medical and legal services; nor are the purchases of food and clothing easy to postpone.

The size of the labor force is the number of people who are employed and those who are unemployed but actively seeking work. Part-time workers looking for full-time jobs are counted as employed. Thus the work force is the addition of unemployed and employed. First we look at the formula for total population: img Next we calculate the size of labor force: img The official unemployment rate is the percentage of unemployed in labor force: img