Chapter 8, Critical Analysis Questions, Due Midnight, Wednesday, 4/26/17
Please complete Chapter 8 Critical Analysis Questions: 1, 2, 3, 4, 5, 7, 8, 10, 13, 14, & 15.
1. List the major phases of the business cycle and indicate how real GDP, employment, and
unemployment change during these phases. Are the time periods of business cycles and the
duration of the various phases relatively similar and therefore highly predictable?
1 Peak or Boom-Highest point. All manufactures are using their capacity to the optimum level
for increasing real GDP. Want to supply more. It is not possible to increase real GDP further.
GDP is very close to potential full employment level. High demand means labor force is
effectively employed. Unemployment rate is low.
2 Contraction or Recession-Real GNP will start decreasing. Rate of decrease is slow but will gain
rapid. Fall will mean less resource will be needed, loss of a lot of jobs will occur.
Unemployment increase. Investments will decrease as well. Interest rate will decrease as well.
Excess unutilized in the industries.
3 Recessionary trough-Lowest level. Real GDP will be lowest possible. Investment will be
almost zero. Unemployment rate will be as high as possible. Interest rate will be at its lowest
possible level. Government initiates first actually. Economy will gradually go up
4 Recovery or expansion phase-Atmosphere of economy less risky and starts to produce again,
Government initiates first actually. Economy will gradually go up
2. *Explain why even an efficiently functioning economic system will have some unemployed
resources.
Job seekers do not know which employers will offer them the more attractive jobs. They find
out by searching. Job search is profitable and consistent with economic efficiency as long as
the marginal gain from search exceeds the marginal cost of searching. The job search
process will lead to a better match between the skills of employees and the requirements of
the available jobs
3. *Classify each of the following as employed, unemployed, or not in the labor force:
a. Brown is not working; she applied for a job at Walmart last week and is awaiting the
result of her application.
b. Martinez is vacationing in Florida during a layoff at a General Motors plant due to a
model changeover, but he expects to be recalled in a couple of weeks.
c. Green was laid off as a carpenter when a construction project was completed. He is
looking for work but has been unable to find anything except a $10-per-hour job, which
he turned down.
d. West works 70 hours per week as a homemaker for her family of nine.
e. Carson, a 17-year-old, works six hours per week as a delivery person for the local
newspaper.
f. Chang works three hours in the mornings at a clinic and for the last two weeks has spent
the afternoons looking for a full-time job.
Individuals e and f would be classified as employed; a, b and c would be classified as
unemployed; d is not in the labor force
4. What is full employment? When full employment is present, will the rate of unemployment
be zero? Explain.
Full employment is present when rate of unemployment is at its natural level. This rate is not
constant. Frictional factors and structural factors are what the rate and percentage is
dependent on. Frictional factors are when unemployment arises due to non availability of
perfect information then it is said to be causing from frictional factors. Structural occurs
due to some basic structural changes in the production activities which make it difficult to
employ existing work force. Some changes in production process require special skills. Zero
rate of unemployment is not possible in the economy. Some unemployment will be there.
Some unemployment in the economy exists because of unemployment causing adoption of
new technology, temporary unemployment for new entrants, temporary unemployment for
getting better job, temporary unemployment for acquiring better skill.
5. Is the natural rate of unemployment fixed? Why or why not? How are full employment and
the natural rate of unemployment related? Is the actual rate of unemployment currently
greater or less than the natural rate of unemployment? Why?
No natural unemployment is not fixed. It depends upon the demography of a particular nation,
its population, policies and various other factors. Natural unemployment and full
employment are both synonymous and they both mean those who are willing to work have
