– Describe the phases of a business cycle

Subject: General Questions    / General General Questions    

Question

    1)Describe the phases of a business cycle.
    2)On the basis of recent news reports, what phase of the business cycle do you think the economy is in now? What is the inflation or deflation rate? The unemployment rate?
    3)Suppose you compare your income this year and last year and find that your nominal income fell but your real income rose. How could this have happened?
    4)Suppose you calculate a grocery price inflation rate. Using the arguments presented in the chapter, explain possible sources of upward bias in the rate you calculate, relative to the actual trend of food prices.

NUMERICAL PROBLEMS

    1)Plot the quarterly data for real GDP for the last two years. (You can find the data online athttp://www.whitehouse.gov/administration/eop/cea/economic-indicators. Relate recent changes in real GDP to the concept of the phases of the business cycle.)
    2)Suppose that in 2013, the items in the market basket for our movie price index cost $53.40. Use the information in the chapter to compute the price index for that year. How does the rate of movie price inflation from 2012 to 2013 compare with the rate from 2011 to 2012?
    3)Recompute the movie price indexes for 2011 and 2012 using 2012 as the base year. Now compute the rate of inflation for the 2011–2012 period. Compare your result to the inflation rate calculated for that same period using 2011 as the base year.

    4)Here are some statistics for August 2006. Compute the unemployment rate for that month (all figures are in thousands).
    Population (Civilian, noninstitutional)    229,167
    Civilian Labor Force    151,698
    Participation Rate    66.2%
    Not in Labor Force    77,469
    Employed    144,579
    Unemployed    7,119
    5)Suppose an economy has 10,000 people who are not working but looking and available for work and 90,000 people who are working. What is its unemployment rate? Now suppose 4,000 of the people looking for work get discouraged and give up their searches. What happensto the unemployment rate? Would you interpret this as good news for the economy or bad news? Explain.