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	Economics 14/e McConnell
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8-1 What are the four phases of the business cycle? How long do business cycles last? How do seasonal variations and secular trends complicate measurement of the business cycle? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer nondurables?

8-3 Use the following data to calculate (a) the size of the labor force and (b) the official unemployment rate: total population 500; population under 16 years of age or institutionalized 120; not in labor force 150; unemployed 23; part-time workers looking for full-time jobs 10.

8-5 Assume that in a particular year the natural rate of unemployment is 5 percent and the actual rate of unemployment is 9 percent. Use Okun’s law to determine the size of the GDP gap in percentage-point terms. If the nominal GDP is $500 billion in that year how much output is being forgone because of cyclical unemployment?

8-7 If the price index was 110 last year and is 121 this year what is this year’s rate of inflation? What is the "rule of 70"? How long would it take for the price level to double if inflation persisted at (a) 2 (b) 5 and (c) 10 percent per year?

8-1 The four phases of a typical business cycle starting at the bottom are trough recovery peak and recession. As seen in Figure 8-1 the length of a complete cycle varies from about 2 to 3 years to as long as 15 years. Normally there is a pre-Christmas spurt in production and sales and a January slackening. This normal seasonal variation does not signal boom or recession. From decade to decade the long-term trend (the secular trend) of the U.S. economy has been upward. A period of no GDP growth thus does not mean that all is normal but that the economy is operating below its trend growth of output. Because durable goods last consumers can postpone buying replacements. This happens when people are worried about a recession and whether there will be a paycheck next month. And firms will soon stop producing what people are not buying. Durable goods industries therefore suffer large output declines during recessions. In contrast consumers cannot long postpone the buying of nondurables such as food; therefore recessions only slightly reduce nondurable output.
8-3 Labor force 5 230 [5 500 2 (120 1 150)]; official unemployment rate 5 10% [5 (23/230) 3 100].
8-5 GDP gap 5 8% [5 (9 2 5) 3 2]; forgone output 5 $40 billion (5 8% of $500 billion).
8-7 This year's rate of inflation is 10% or [(121 2110)/110] 3 100. Dividing 70 by the annual percentage rate of increase of any variable (for instance the rate of inflation or population growth) will give the approximate number of years for doubling of the variable. (a) 35 years (5 70/2); (b) 14 years (5 70/5); (c) 7 years (5 70/10).

Chapter 8 - Macroeconomic Instability: Unemployment And Inflation