Chapter 4 Business cycles

Question 1

what are the 5 stages of the Business cycle?

Answer 1

1. Expansion
   - inflation is stable
   - Business are expanding to meet demand
   - profits are rising
   - start-ups outnumber bankruptcies
   - job creation is steady, unemployment falling
2. Peak
   - demand begins to over take supply
   - labour and product shortages cause inflation
   - interest rates increase and bonds fall
   - business sales decline
   - House sales go down
3. Contraction (if the downturn lasts more than two quarters normally signals recession)
   - Real GDP starts to decrease
   - Businesses have too much inventory and declining profits. start downsizing, letting staff go.
   - Bankruptcies outnumber start-ups
   - consumers start to spend less further cutting into profits
4. Trough (lowest point)
   - Interest rates fall, triggering bond rally
   - inflation falls
   - consumers begin to spend
   - stock prices rally
5. Recovery
   - Firms start to increase production again
   - Layoffs decrease
   - Firms still not ready to make investments
   - unemployment remains high
   * when economy rises above previous peak another expansion has begun

Question 2

What are the 3 types of economic indicators?

Answer 2

1. leading indicators
   - housing starts
   - Manufacturer’s new orders
   - commodity prices
   - average hours worked per week
   - stock prices
   - the money supply
2. coincident indicators (indicators that change around the same time as the economy)
   - personal income
   - GDP
   - industrial production
   - retail sales
3. Lagging indicators
   - unemployment
   - Private sector plant and equipment spending
   - business loans
   - labour costs
   - the inflation rate

Question 3

What are four criteria statistics Canadas defines a recession as?

Answer 3

1. A decline of substantial depth, as marginal decline can be from statistical error.
2. Must be more than a couple months as things like weather can cause a temporary decline in output.
3. The decline must be of the entire economy. As a decline in a major industry can cause the GDP to drop without in constituting a recession.
4. the behavior of employment and per capita income must be taken into account.

Question 4

What is a soft landing?

Answer 4

it is when the business cycle declines but does not go into a recession.

Question 5

what two groups statistics canada sort people into pertaining to the labour force

Answer 5

1. 15 years and older, the working population

2. under 15 years

Question 6

how does statistics canada define the labour force

Answer 6

as the sum of the working age population who are employed or unemployed.

Question 7

what are the two labour market indicators?

Answer 7

1. Participation rate represents the share of the working-age population that is in the labour force.
2. the unemployment rate

Question 8

what is a discouraged worker?

Answer 8

someone who is seeking a job who hasn’t applied anywhere for over a month. usually when job opportunities are so poor during a recession

Question 9

what are 3 types of unemployment?

Answer 9

1. Cyclical unemployment - tied to the business cycle
2. Frictional unemployment - regular ebs and flows of the job market.
3. structural unemployment - Changes in work envoirment or skills required for a job. new technology ect