The Business Cycle

Summary 9

The business cycle is one of the most important visual and applied concepts within economics. The business cycle helps economists label growth trends within our market. There are four phases of the business cycle; the duration of the cycle and its strength of the vase may vary. The peak of the cycle is when activity has reached a temporary maximum. In this level, the economy is at its full employment and the output is close or at its capacity. Unfortunately, the price levels are likely to increase during this phase. Next is the recession. In the recession part of the cycle, there is a decline in total output income and employment. Within this part of the cycle real GDP declines which then significantly increases unemployment. Typically a recession could last up to 6 months but sometimes even longer. Since 1950 there have been 10 recessions. Recessions are typically followed by expansion or recovery. An expansion is best defined as the part of the business cycle where real GDP and employment rise back up again. Once spending expands, the production follows which then little by little pushes the economy back into full employment thus rising prices again which then creates inflation. Last in the cycle is the trough. The trough is where no economy ever wants to be in. Recession and depression employment and output are at their lowest levels. This phase could be either short or extremely long.

Unemployment for the nation is determined by surveying households on whose working, if they're unemployed and looking for work if they are part time or full time, and not looking for work. There are three groups within the US population. First are the group of people under 16 years old and people who are institutionalized (not able to work due to mental and or physical conditions), according to the Bureau of Labor statistics this group is made up of 69.5 million people. Next are the people not in the labor force. These are adults who have the potential to be workers but are not seeking work or employed, such as students, stay at home moms and the retired. This group consists of 94.1 million people. Last are the labor force. The labor force consists of those actively working and others who are unemployed but are actively seeking employment, this group consists of 149.9 people. To find the unemployment rate you must divide the unemployed by the labor force and then multiply it by 100. Unemployment is divided into two categories which are structural and frictional. Frictional unemployment is inevitable and in a way desirable. Structural unemployed is the trend where changes over time and by the consumer demand.