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Contemporary Economics:
An Applications Approach
By Robert J. Carbaugh
1st Edition
Chapter 11:
The Business Cycle,
Unemployment, and Inflation
Copyright ©2001, South-Western College Publishing
Business Cycles
Real GDP
The business cycle
Full Cycle
Peak
Peak
Real GDP
Recovery
Recession
Trough
0
0
Time
Carbaugh, Chap. 11
2
Business Cycles
Postwar recessions for the US
Period
Duration
in months
Percentage decline
Peak
in real GDP
unemployment rate
1949
1953-54
1957-58
1960-61
1969-70
1973-75
1980
1981-82
1990-91
11
10
8
10
11
16
6
16
9
-2.0%
-3.0
-3.5
-1.0
-1.1
-4.3
-2.4
-3.4
-1.2
Average
11
-2.4
7.9%
6.1
7.5
7.1
6.1
9.0
7.8
10.8
7.1
7.1
Source:Economic Report of the President, 1993
Carbaugh, Chap. 11
3
Unemployment
The burdens of unemployment in 1998
Overall
4.6%
Gender
Male
Female
4.4
4.6
Race
White
Black
3.9
7.8
Age
White
16-19 years
20 years and over
Black
16-19 years
20 years and over
Unemployment rates by
demographic characteristics
(percent)
14.1
3.2
25.3
7.9
Average duration of unemployment: 14.5 weeks
Source: Economic Report of the President, 1998
Carbaugh, Chap. 11
4
Unemployment
Unemployment rates around the world, 1998
Country
United States
Canada
Australia
Japan
France
Germany
Italy
Sweden
United Kingdom
Unemployment
rate
4.2%
8.4
8.1
3.8
11.8
7.6
12.3
8.2
6.3
Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 1998
Carbaugh, Chap. 11
5
Unemployment
Rigid wages can result in involuntary unemployment
Flexible wages
Hourly wage rate ($)
Hourly wage rate ($)
Inflexible wages
48
S0
B
A
24
48
S0
40
32
A
24
C
16
8
D0
D1
0
0
2
4
6
8
0
10
Labor (millions of persons)
Carbaugh, Chap. 11
12
D0
D1
0
2
4
6
8
10
12
Labor (millions of persons)
6
Inflation
Impact of inflation on the real value of $10,000
Annual Inflation Rate
Year
2 percent
4 percent
6 percent
8 percent
10 percent
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$10,000
$9,800
$9,610
$9,420
$9,240
$9,060
$8,880
$8,710
$8,530
$8,370
$8,200
$10,000
$9,620
$9,250
$8,890
$8,550
$8,220
$7,900
$7,600
$7,310
$7,030
$6,760
$10,000
$9,430
$8,900
$8,400
$7,920
$7,470
$7,050
$6,650
$6,270
$5,920
$5,580
$10,000
$9,260
$8,570
$7,940
$7,350
$6,810
$6,300
$5,830
$5,400
$5,000
$4,630
$10,000
$9,090
$8,260
$7,510
$6,830
$6,210
$5,640
$5,130
$4,670
$4,240
$3,860
Carbaugh, Chap. 11
7
Inflation
US Consumer Price Index
US inflation rate as measured
by the CPI, 1960-98
Years
1960-64
1965-69
1970-74
1975-79
1980-84
1985-89
1990-94
1995
1996
1997
1998
Average annual
inflation rate
1.3%
3.5
6.1
8.1
7.5
3.6
3.5
2.5
3.3
1.7
1.6
Consumer price index for
selected years (1982-84=100)
Year
CPI
1990
1991
1992
1993
1994
1995
1996
1997
1998
130.7
136.2
140.3
144.5
148.2
152.4
156.9
160.5
163.0
Source: Economic Report of the President
Carbaugh, Chap. 11
8
Cost of Living
Work-time cost of products, today vs. yesterday
Product/year
Cruise (1972)
Pizza (1958)
New home (1920)
Movie (1917)
Auto rental (1970)
Suit (1927)
Dry cleaning (1946)
Big Mac (1940)
Levi's (1897)
Automobile (1908)
Camcorder (1988)
Gasoline (1920)
Washer (1911)
percent
88.2
87.7
71.8
65.6
62.2
50.6
42.2
33.0
32.2
29.1
28.5
17.5
13.0
Product/year
Hershey bar (1900)
Dryer (1940)
VCR (1978)
Chicken (1919)
Microwave (1967)
Coke (1900)
Range (1910)
Dishwasher (1913)
Contacts (1971)
Color TV (1954)
Calculator (1972)
Cellular phone (1984)
Computing (1984)
percent
10.1
9.6
9.4
9.2
8.5
7.5
6.4
5.6
4.2
4.1
2.5
2.0
0.6
Source: Federal Reserve Bank of Dallas, 1997 Annual Report
Carbaugh, Chap. 11
9