Chapter 10 - Business cycles, unemployment, and inflation. After reading the material in this chapter, you should be able to: Compare and contrast potential GDP and real GDP, define the unemployment rate and distinguish between the different types of unemployment, explain the tradeoff between unemployment and inflation, define recessions and discuss the impact of recessions on workers and businesses, list the possible causes of recession. | Chapter 10 Business Cycles, Unemployment, and Inflation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Compare and contrast potential GDP and real GDP. Define the unemployment rate and distinguish between the different types of unemployment. Explain the tradeoff between unemployment and inflation. Define recessions and discuss the impact of recessions on workers and businesses. List the possible causes of recession. 10- Potential versus Real GDP Potential GDP is the output of the economy assuming no strains on production or unused resources. Potential and actual GDP can be different. The economy normally operates at levels above or below potential. The rate at which potential GDP rises is the potential growth rate. 10- Potential Growth The potential growth rate in the economy is a combination of the long-term growth rate of the labor force plus the long-term growth rate of productivity. The estimated growth rate in potential GDP for the . is around 3% per year. Projections of potential GDP are made to forecast the sustainable growth path for the economy. 10- The Path of Potential GDP 10- The Output Gap As noted previously, the actual level of real GDP may be higher or lower than potential GDP. The output gap is the difference between actual and potential GDP. The output gap is negative when actual GDP is less than potential, and positive when the output is greater than potential. 10- The Output Gap 10- Unemployment Unemployment is a key measure of the health of the economy. The unemployment rate is the percentage of the labor force who are unemployed. The labor force is the sum of the employed workers and the unemployed workers. Unemployment occurs when actual GDP is below potential GDP, and the economy slows. 10- Unemployment Rate, 1960-2010 10- Types of Unemployment Unemployment can be classified into 3 categories: Frictional unemployment arises due to . | Chapter 10 Business Cycles, Unemployment, and Inflation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Compare and contrast potential GDP and real GDP. Define the unemployment rate and distinguish between the different types of unemployment. Explain the tradeoff between unemployment and inflation. Define recessions and discuss the impact of recessions on workers and businesses. List the possible causes of recession. 10- Potential versus Real GDP Potential GDP is the output of the economy assuming no strains on production or unused resources. Potential and actual GDP can be different. The economy normally operates at levels above or below potential. The rate at which potential GDP rises is the potential growth rate. 10- Potential Growth The potential growth rate in the economy is a combination of the long-term growth rate of the labor force plus the long-term growth rate of productivity. The estimated growth rate .
