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The Business Cycle & Unemployment

Ronnie Tang, Tom Lewis, Ian Siow

Identify industries that are

particularly affected by cyclical changes

Examples of other industries

Changes in Stages

  • Construction
  • less output over winter.
  • Utilities
  • Gas higher in winter
  • Electricity higher in summer
  • Every industry experiences fluctuation in output and productivity levels.
  • Fluctuation occurs because of changes that occur within the businesses and in the macroeconomic environment.
  • No industry is immune from change.

These events trigger changes between

stages in the business cycle:

  • Innovation
  • Political events
  • Random events
  • Purely monetary phenomenon
  • Immediate determinant

Use in planning

The Economic Cost of Unemployment

  • Applied to forecasting
  • Used as a reference to measure performance
  • Used as reference to optimize business
  • Improve productivity by allocating resources according to expected performance.

Stages of the Business Cycle

  • Cyclical Peak
  • Recession
  • Trough
  • Recovery

RETAIL Industry- Consumer Goods

  • Christmas
  • Mid year sales
  • Every year, same time period.

Economic Costs

  • GDP changes:

If GDP gap , Unemployment

Okun's Law quantifies relationship between GDP gap and Unemployment

  • Unequal Burdens: Economic cost is unequally distributed
  • Occupation
  • Age
  • Ethnicity
  • Gender
  • Education
  • Duration

Non-Economic Costs

  • Severe Cyclical Unemployment = Severe Idleness = Social Unrest

  • Poverty

  • Socio-political turbulence
  • Racial/Ethnic Tensions

What Is The Business Cycle?

  • Refers to the ‘ups and downs’ in the level of economic growth measured by REAL GDP
  • Stages vary in duration and intensity
  • Fluctuates around a predetermined growth trend
  • Cyclical pattern
  • However there can be non-cyclical fluctuations
  • Seasonal variations
  • Secular trend

Objectives

QUESTIONS?

  • Outline the meaning and stages of a business cycle. What starts a turn in the cycle?

  • Identify industries that are particularly affected by cyclical changes

  • Explain the economic costs of unemployment using an AD/AS graph
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