Unemployment + business cycles

Question 1

What are the 4 stages of the business cycle in consecutive order?

Answer 1

Peak, recession, trough, recovery

Question 2

What are the 3 reasons as to why there would be an upwards trend in GDP following a rise in investment spending?

Answer 2

The accelerator effect

Availability of funds

Expectations (banks cautious on lending as I is volatile)

Question 3

‘The floor’ + what combats this?

Answer 3

Low level of GDP - household use up savings/enter debt to sustain essentials of life, unemployment benefits + welfare payments combat this

Question 4

What are the 2 measures of unemployment?

Answer 4

The claimant count

ILO unemployment

Question 5

Describe the ‘claimant count’ measure of unemployment + how do we calculate it?

Answer 5

In the UK, all people claiming unemployment-related benefits

no. of ppl in jobs claiming benefits/unemployed ppl claiming benefits * 100

Question 6

Describe the ‘ILO unemployment’ measure of unemployment

Answer 6

All ppl between 16-65 put into 1 of 3 classes:

ILO employed
Unemployed
Economically inactive (not seeking or in employment)

Question 7

What are the pro’s and con’s of the ILO measure?

Answer 7

+ = measures those who say they’re unemployed, not just those claiming benefits

• = categorises ‘employed’ as anyone who does just 1 hour’s paid work with those who work much longer hours

Question 8

What’re the 3 key concepts used in the ILO measure?

Answer 8

Unemployment rate (no. of unemployed ppl/total labour force

Labour force (total no. employed + unemployed)

Participation rate (% of working age pop. in labour force)

Question 9

What are the 5 different types of unemployment?

Answer 9

Frictional (ST unemployment < time between finding a job and leaving another)

Structural (mis-match of skills)

Equilibrium (frictional + structural > economy at full employment)

Cyclical (extra unemployment during recessionary periods)

Involuntary (ppl out of work that don’t choose to be)

Question 10

What’re the causes of cyclical (demand-deficient) unemployment?

Answer 10

-ve output gap (only causes cyclical unemployment if wages are sticky - slow to change in response to a recession in economy for example)

Question 11

What’re the causes of structural unemployment + give examples

Answer 11

Shifts in D for existing products/development of new ones

e.g. decline in manufacturing, rise in tertiary sector > caused by sharp appreciation of sterling in early 1980s + competition from China