ECN 204 Chapter Notes - Chapter 9: Unemployment, Business Cycle, Potential Output

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25 Jul 2016
1. ECN204 – Chapter 9 – Cycles, Unemployment, Inflation
Business Cycle
Canada’s economic growth has been interrupted with periods of instability from uneven
growth, inflation accompanies rapid growth and higher prices, and decline in output and
inflation during the recession
Phases of the business cycle include the (1) peak, (2) recession, (3) trough, (4) expansion
Peak – business activity reaches maximum full employment and output
Recession – decline in total output, income, employment, trade for at least 6 months
Trough – bottom of economic activity
Expansion – recovery when output and employment are expanding toward full
employment levels
Causation – irregular innovation, productivity changes, monetary factors, political events,
financial instability
Cyclical impact – durable and non-durable
Durable – affects most capital goods and consumer durables
Non-durable – affected less like services, food, and clothing
Population divided into three groups (1) those under 15, (2) those not in the labor force,
and (3) those in the labor force
Four types of unemployment (1) frictional, (2) structural, (3) cyclical, and (4) seasonal
(1) Frictional – those searching and waiting for jobs
(2) Structural – caused by changes in demand and technology affects labor demand
(3) Cyclical – caused by decline in total spending
(4) Seasonal – caused by seasonal factors, construction, etc.
Full unemployment does not mean zero unemployment, full unemployment is equal to
frictional and structural unemployment, also known as the natural rate of unemployment
Natural rate is achieved when labor markets are in balance; number of jobseekers equals
number of job vacancies, at this point economy’s potential output is being achieved
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