Chapter 6. Economic Growth, Business Cycles, Unemployment, and Inflation

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Chapter 6. Economic Growth, Business Cycles,
Unemployment, and Inflation

• 6.A. Two Frameworks The Long Run and the Short
  Run
• 6.B. Growth
• 6.C. Business Cycles
• 6.D. Unemployment
• 6.E. Inflation

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6.A. Two Frameworks The Long Run and the Short
Run

• What lengths of time typically differentiate the
  short run from the long run?
• Is anything assumed to be fixed or constant in
  the long run?
• Is anything assumed to be fixed or constant in
  the short run?

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6.B. Growth

• Is the U.S. economy generally growing? Is the
  U.S. economy growing right now?
• If the economy as a whole is growing, does that
  mean our income as individuals is growing too?
  What about the average income of individuals?
  What about the median income of individuals?
• 6.B.1. Global Experiences with Growth
• 6.B.2. The Benefits and Costs of Growth

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6.B. Continued

• Is growth a long run or a short run phenomenon?
• Does growth appear to be driven by demand
  (decisions by buyers of products and services) or
  supply (decisions by makers of products and
  services)?

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6.B.1. Global Experiences with Growth

• Are current growth rates historically high or
  low?
• Are average growth rates the same across
  different regions?
• What regions generally have grown the fastest?
  The slowest?
• When did economic growth start to be important
  (for practical purposes)?

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6.B.2. The Benefits and Costs of Growth

• Do all individuals benefit from growth?
• On average, do individuals benefit from growth?
• Does growth help elected officials face tough
  decisions?
• Does growth help elected officials make tough
  decisions?
• Are there costs to growth?

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6.C. Business Cycles

• Does the economy always grow at the same rate?
• Can the size of the economy actually decline?
  What does the growth rate have to be for this to
  happen?
• 6.C.1. The Phases of the Business Cycle
• 6.C.2. Why Do Business Cycles Occur?
• 6.C.3. Leading Indicators

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6.C.1. The Phases of the Business Cycle

• What names are given to the points in time when
  the size of the economy changes direction?
• Which of those points of time is generally easier
  to notice, as it is happening?
• What names are given to the periods of time
  between those two points?
• Which of those periods is generally longer?

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6.C.1. Continued

• What are two names used to describe the economy
  doing well?
• What are three names used to describe the economy
  doing poorly?
• What is an additional name reserved for
  describing an extremely bad period for the
  economy?

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6.C.2. Why Do Business Cycles Occur?

• Does expansion and contraction in the economy
  appear to be driven by demand or supply?
• Do those changes appear to be random?
• Do long or strong expansions make the subsequent
  contractions worse?
• Are expansions and/or contractions getting longer
  or shorter? More volatile or less?

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6.C.3. Leading Indicators

• Can peaks and troughs be predicted? How well? How
  far in advance?
• What are some leading indicators?

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6.D. Unemployment

• 6.D.1. Unemployment as a Social Problem
• 6.D.2. Unemployment as Governments Problem
• 6.D.3. Why the Target Rate of Unemployment
  Changed
• 6.D.4. Whose Responsibility is Unemployment
• 6.D.5. How is Unemployment Measured?
• 6.D.6. Unemployment and Potential Output
• 6.D.7. Microeconomic Categories of Unemployment

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6.D. Continued

• How do we measure unemployment?
• Unemployment is divided into four types - can we
  measure those?
• What is the least serious type of unemployment?
  Why?
• What is the third most serious type of
  unemployment? Why?
• What is the second most serious type of
  unemployment? Why?
• What is the most serious type of unemployment?
  Why?

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6.D.1. Unemployment as a Social Problem

• How long has unemployment been a social problem?
• What does this have to do with cyclical (and
  perhaps structural) unemployment?
• How was this related to the change from an
  agricultural to an industrial society?

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6.D.2. Unemployment as Governments Problem

• Why are elected governments sensitive to the
  amount of unemployment? What about governments
  that are not elected?
• What does the text call the desired rate of
  unemployment? What is another common name for it?
• What is the approximate desired rate of
  unemployment? Has this changed? Why isnt it zero?

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6.D.3. Why the Target Rate of Unemployment
Changed

• Can you list four reasons why the target rate has
  changed? Which one has to do with problems with
  coordination of government policies? Changed in
  government policies? Changes in society? Changes
  in the age profile?

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6.D.4. Whose Responsibility is Unemployment

• If you think that unemployment is the
  responsibility of the individual, then this is
  consistent with what sort of macroeconomist?
• If you think that unemployment is the
  responsibility of the government (or society),
  then this is consistent with what sort of
  macroeconomist?

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6.D.5. How is Unemployment Measured?

• Who is counted in the labor force? Who is
  excluded?
• How is the labor force divided?
• How is the unemployment rate formed from that
  information?

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6.D.5. Continued

• What do we call someone who would like to work,
  but has given up looking for a job? Are they
  counted as unemployed? Why?
• What do we call someone who has to work less than
  they would like to? Are they counted as employed
  or unemployed? Why?
• Why is the unemployment rate a useful measure,
  even if it could be improved?

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6.D.6. Unemployment and Potential Output

• Do we always fully employ the labor force? How
  about machinery?
• What do we call the level of output we would
  produce if we (hypothetically) employed all
  available labor and machines?
• How did Okun relate the unemployment rate to that
  level of output?

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6.D.7. Microeconomic Categories of Unemployment

• Who is more likely to be unemployed, men or
  women?
• What age group is most likely to be unemployed?
• What race is least likely to be unemployed?
• Are spells of unemployment more likely to be long
  or short?
• What is the most likely reason for unemployment?

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6.E. Inflation

• Have nominal prices always risen through time?
• How long have nominal prices been generally
  rising?
• 6.E.1. Measurement of Inflation
• 6.E.2. Real and Nominal Concepts
• 6.E.3. Expected and Unexpected Inflation
• 6.E.4. Costs of Inflation

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6.E.1. Measurement of Inflation

• What do we call a number that measures changes in
  the price of more than one product?
• Can you construct one of these from data like
  Table 6-4 on the test?

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6.E.1. Continued

• What are the three most widely used prices
  indices?
• Which one is broadest?
• Which one is most appropriate for you?
• Which one is released most often? Least often?
• Which one might help us tell what prices are
  going to do in the future?

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6.E.1. Continued

• Price indices can be biased for four reasons. Can
  you identify those below?
• Do people shift from expensive to cheap products?
  
• Do manufacturers improve products without
  increasing their price?
• Are new products counted in price indices? Why
  not?
• Does Wal-Mart sell (only) junk?

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6.E.2. Real and Nominal Concepts

• If a value is measured in pieces of paper called
  dollars (or pounds, francs, yen, marks, or pesos)
  it is called what?
• What is the problem with comparing nominal
  values? How is the severity of this problem
  related to the passage of time?
• When we correct for this problem with a price
  index, what do we call the resulting value?

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6.E.3. Expected and Unexpected Inflation

• Do you expect prices to change through time?
• Are your expectations of price changes accurate?

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6.E.4. Costs of Inflation

• Does a price increase make demanders or suppliers
  better or worse off? So, how is society affected
  by this?
• If prices on most goods are rising, who is
  generally hurt people who also raise prices, or
  people who are stuck at the old prices?

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6.E.4. Continued

• Which is easier to deal with, expected or
  unexpected inflation? How is this related to
  borrowing and lending?
• Does inflation make it easier or harder to plan
  your future purchases?
• If there is inflation, would you shop-around more
  or less? Is this good for society?

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6.E.4. Continued

• Are governments and societies comfortable with
  certain rates of inflation?
• If you get comfortable with current inflation,
  what happens to your expectations of future
  inflation?
• If so, what do you do now?
• What do we call those sorts of expectations?
• What may this lead to?