Question

GDP is a key concept in Macroeconomics. a. What is the definition of GDP? b. Go to bea.gov and tell me the level of gdp for the past 4 years. c. Go to topic called Economic Growth and look at slide 3 and tell me if the falling trend line is a good or bad thing for the nation and why. Please be thorough! d. List and explain in detail, the 3 different approaches to calculating GDP. i. List and explain the approaches and how you would use each to calculate GDP. e. List and explain 4 types of transactions that would not be included in GDP and why they should be omitted. i. Look in the notes and find 4 types of transactions that are excluded from the computation of GDP and write them down along with the explanation of each and why they are not included. f. Thoroughly explain the 4 components of GDP and relate those components to the Circular Flow model with government and international trade. g. Nominal versus real GDP. i. Explain the difference between nominal and real GDP. Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. ii. Explain in detail, how to calculate real GDP, including the factors used in the calculation. 1. Look in the notes to find this – very straight forward. iii. Explain in detail the CPI since it is used to make the conversion. iv. Explain what you can do with real GDP that you cannot do with nominal GDP and explain why not. h. GDP and GDP per-capita. i. Explain the difference between GDP and Per Capita GDP; ii. Explain how to calculate Per Capita GDP, and how Per Capita GDP can be used. 2. Economic growth. Two key sources of economic growth have been due to increases in resources and increases in productivity. a. Please list 5 factors that might contribute to falling U.S. GDP growth rates and explain how they might lead to falling GDP growth rates. b. Explain in detail, what we could do to avoid each of those 5 factors causing our GDP growth rates to fall. c. Please list 5 factors that might contribute to rising U.S. GDP growth rates and explain how they might lead to rising U.S. GDP growth rates. d. Explain in detail, what we could do to cause each of the 5 factors to happen and cause our GDP growth rate to increase. 3. The Business Cycle and Built in stabilizers. a. What can the business cycle tell you about the status of our economy today and into the future (please provide detail)? Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. b. Given what you have learned about the U.S. Business cycle over the past 60 years, please explain 4 ways you can use that information to enhance your odds of achieving future personal success. Please do not talk about your financial portfolio or playing around with the stock market. c. Explain in some detail the 4 phases of the business cycle, Please don’t include Depression as one of them. including the characteristics of each. Be thorough! You should have at least 4 characteristics for each phase! Include in your discussion how each phase of the business cycle might impact your life and what you should do to minimize the damage to your future. d. Explain in detail, 4 possible causes of change in the direction of the business cycle. You are looking for things that are out of the control of the government. Do not talk about fiscal or monetary policy tools here. Don’t say inflation or recession! e. Built-in Stability 1. Explain the difference between discretionary and non-discretionary fiscal policy, 2. Explain the key relationships that supports the built-in stabilizer, the were provided in the slides and lecture. 3. Explain thoroughly how the built-in stabilizer works to reduce inflation 4. Explain thoroughly how the built-in stabilizer works to reduce recession 5. Explain why the presence of the built-instabilizer is important to managing the macro economy. Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. 4. Unemployment and Recession a. Explain in detail, how the unemployment rate is calculated. b. Explain in detail, how we define the employed, the unemployed, and who is in the labor force? i. The link BLS website should help - http://www.bls.gov/news.release/empsit.t15.htm c. List and explain (don’t just copy and paste) the various unemployment rates used by the BLS, and indicate which one of the 6 is the official unemployment rate. i. This link to the BLS website should help - http://www.bls.gov/news.release/empsit.t15.htm d. There has been a historic disparity between unemployment rates for Black, Hispanic, and White workers. i. Please provide detailed explanations of 4 reasons the Black and Hispanic unemployment rates are always significantly higher than the unemployment rate for Whites. ii. Explain in detail, 3 things that should be done to correct the problem. Be sure you explain how each recommendation would actually lead to solution of the problem. Please be very thorough with this. e. The 3 types of unemployment. i. List and explain the 3 types of unemployment that we discussed. Include the characteristics of each and the role of skills for each. ii. Explain how each type contributes to growing income and wealth inequality. 1. You would want to list and explain the 3 types. You will find everything on the 2 or 3 slides plus the audio provides additional insight. Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. f. List and explain thoroughly, 4 examples of significant economic costs of unemployment and what we might do to reduce those costs. g. Unemployment and how to use Fiscal Policy to address Recession. Background for this question: The US economy is currently experiencing recession according to the Federal Government. You can use only Fiscal Policy and the AD – AS model. i. List and explain the 3 Fiscal Policy tools covered in the slides that apply to fixing recession, and indicate the one that you want to use to attack the recession problem? 1. List the 3 choices and state specifically which one you will use. Please note that transfer payments would come under the heading of government spending! So don’t use it as one of your 3 tools of fiscal policy. ii. Explain why you selected this tool and not the others. Refer to your decision criteria. 1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did not pick the other option(s). iii. Explain how your tool would solve the recession problem and what effects your solution would have on at least five key economic variables. BE SPECIFIC! I WANT TO SEE THE DETAIL. USE THE WHAT HAPPENS NEXT APPROACH! 1. Explain how your choice of tools would work to solve the problem of recession. Start with the implementation of your tool and then list step by step what happens next, until you arrive at the appropriate impact on GDP. Be sure you provide the detailed step by step flow. 2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out. Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. 5. Inflation a. What is inflation and how is it calculated? b. List and explain the two types of inflation c. Give two examples of who might be hurt by inflation and why. d. Give two examples of who might be helped by inflation and why. e. Inflation and how to use Fiscal Policy to address the problem of Inflation. Background for this question: Assume the US economy is currently experiencing high rates of inflation according to the Federal Reserve. Use only Fiscal Policy and the AD – AS model. i. List and explain the 3 Fiscal Policy tools covered in the slides and indicate which tool you will use to attack the inflation problem? 1. List the 3 possible choices and then just tell me which of the tools you would select. Just write it down. ii. Explain why you selected this particular tool and not the others. Refer to your decision criteria. 1. Consider the pros and cons of each of the 3 tools and tell me why you picked the one you picked and why you did not pick the other option(s). iii. Explain how your solution would work to solve the problem of inflation and what effects your solution would have on at least five key economic Variables? BE SPECIFIC! I NEED TO SEE THE DETAIL. USE THE WHAT HAPPENS NEXT APPROACH! Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. 1. Explain how your choice of tools would work to solve the problem of recession. Start with the implementation of your tool and then list step by step what happens next, until you arrive at the appropriate impact on GDP. Be sure you provide the detailed step by step flow. 2. Using that approach allows the list the key economic variables and how each would be affected, to pop right out. 6. The Aggregate Demand curve shows the level of real output that the economy will purchase at each price level. a. List and thoroughly explain the three reasons the Aggregate Demand curve is downward sloping. i. In your explanation, please start with an increase in prices and work through to a decrease in AD. b. List and explain in detail, the components of Aggregate Demand and explain each of their determinants i. You studied the 4 components. List and explain them and under each list and explain the determinants of each. c. Explain how the Aggregate Demand - Aggregate Supply Model differs from the Aggregate Expenditures model i. Put the two models side by side, look for the differences and explain them. 7. The basic macroeconomic relationships introduced a number of key concepts. a. Please explain the relationships between income, consumption, savings, and GDP. i. Define each ii. Explain the relationship between these items. b. Please explain the relationships between interest rates, expected rates of return, investment, and GDP. Be specific and be thorough. i. All of the necessary info is provided in the slides and audio lectures Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. c. Please explain the concept of the multiplier, including: 1. What information is required to calculate the spending multiplier a. Refer to the slides, the info is there. Look closely – don’t miss this! 2. List and explain the 3 different multipliers that we discussed. a. Again, refer to the slides, it’s all there. 3. Explain in detail how the multiplier works to impact GDP. Be specific! a. Use the chart from the slide set as the basis of your explanation. Start with the injection of money into the economy and then how that affects household income and then spending via the mpc. Go on to discuss the rounds of spending, etc. and how the ultimate impact on gdp is amplified by the multiplier effect. 8. The Aggregate Supply curve shows the level of real output that the business sector will produce at various possible price levels. a. Explain the Long Run Aggregate Supply curve and the assumptions that support its shape at full employment. i. List the assumptions, discuss the shape of the LR AS curve and why it takes that shape. b. Explain the Short Run Aggregate Supply curve and the assumptions that support its shape. i. List the assumptions, discuss the shape of the SR AS curve and why it takes that shape. Discuss the difference in the shape of the curve at levels below full employment GDP and what you see at levels above full employment GDP. 9. Fiscal policy can be called on to correct conditions of recession and inflation. Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted. a. List and explain the 3 tools of Fiscal Policy that would be appropriate for addressing recession and explain in detail how each would ultimately impact aggregate demand and equilibrium GDP. Be specific! Please consider transfer payments as part of government spending, so don’t claim it is a tool. i. You would want to list and explain the 3 tools and how each (step by step) would affect AD and equilibrium gdp. b. List the 3 tools of Fiscal Policy that would be appropriate for addressing inflation and explain in detail how each would ultimately impact aggregate demand and equilibrium GDP. Be specific! i. You would want to list and explain the 3 tools and how each (step by step) would affect AD and equilibrium gdp. 10.We discussed four problems that complicate the application of fiscal policy. a. List and thoroughly explain these 4 problems, including how each would likely impact the overall effectiveness of fiscal policy. Be specific! Be thorough! i. You should list the 4 problems associated with Fiscal Policy that were listed in the slides and explain the factors associated with each. And as you address each problem, discuss how each would impact the effectiveness of fiscal policy.

Answer 1

GDP Defination:

According to OECD GDP is defined as Gross domestic product (GDP) is the standard measure of the value added created through the production of goods and services in a country during a certain period. As such, it also measures the income earned from that production, or the total amount spent on final goods and services (less imports). While GDP is the single most important indicator to capture economic activity, it falls short of providing a suitable measure of people's material well-being for which alternative indicators may be more appropriate. This indicator is based on nominal GDP (also called GDP at current prices or GDP in value) and is available in different measures: US dollars and US dollars per capita (current PPPs).

GDP Levels Fast Five years In Graphical Reprenstations

3.Economic Growth:

The integrated industry-level production account (ILPA) contains estimates of the sources of economic growth. It allows analysts to trace aggregate GDP growth from its industry origins to changes in factors of production, including capital, labor, intermediate inputs, and (integrated) multifactor productivity. Accounts of this nature are often referred to as "KLEMS" accounts and the "integrated" terminology reflects a collaboration between the Bureau of Labor Statistics (BLS) and BEA to produce consistent estimates. The account has proven useful for analysts studying structural change, globalization, the impact of information and communications technology, and the industry origins of productivity growth.

The Integrated Industry-Level Production Account traces the sources of growth in GDP and output from their industry origins by examining changes in capital; labor; intermediate purchases of energy, materials, and services; and multifactor productivity.Accounts of this nature are often referred to as "KLEMS" accounts after the broad categories of inputs that industries use in their production (K=capital, L=labor, E=energy, M=materials, and S=purchased services).

At Prest Economy Situations(2019-2020):

Arts and Culture

There's no business like show business - but art museums, fashion design, and historic sites play special roles in the economy, too. The Arts and Cultural Production Satellite Account measures the economic contributions of a wide range of arts and cultural activities: music groups, dance troupes, and theaters; natural parks, zoos, and all sorts of museums; interior design, graphic design, and photography; and much more. We also look at the industries that support them – broadcasting, publishing, filmmaking, and the manufacturing of cameras and musical instruments, for example.

The data about arts and culture and their supporting industries include their contributions to gross domestic product (GDP), as well as their output, employment, and compensation, both nationally and by state.

Health Care

Our health care statistics are about more than spending and economic growth. They also help Americans better understand the delivery of care that's essential to their well-being. To better measure spending trends and treatment prices, BEA developed a set of supplemental statistics called the Health Care Satellite Account. These statistics give policymakers, researchers, and the public another way of understanding the economics of health care.

This satellite account measures U.S. health care spending by the diseases being treated (for example, cancer or diabetes) instead of by the types of goods or services purchased (such as hospital or doctor's office visits). It also provides price indexes of treatments. At the same time, BEA continues to produce the traditional goods-and-services health care estimates that are part of our core statistics, such as GDP.

Outdoor Recreation

Boating and biking, camping and climbing, hunting and hiking - they're all part of the new Outdoor Recreation Satellite Account. We're digging deeper into the data on these activities to help natural resource managers, the outdoor recreation industry, policymakers, and the public understand the role of outdoor leisure pursuits in the economy.

The statistics feature the outdoor recreation industry's contributions to GDP. Other data include outdoor rec-related gross output, employment, and compensation for different types of industry, such as motor vehicle manufacturing. Data on gross output, a measure of sales or receipts, is produced for specific outdoor activities, such as biking, RVing, or snowboarding.

Travel and Tourism

Hitting the road for fun? Flying cross-country on business? Either way, you'll contribute to BEA's travel statistics. People follow the Travel and Tourism Satellite Account to get an industry update and for clues to the future of the larger economy.

The account measures how much visitors spend and the prices they pay for lodging, airfare, souvenirs, and other travel-related goods and services. These national statistics also provide a snapshot of employment in travel and tourism industries.

Digital Economy

The economic effects of online shopping, digital media, the sharing economy, and other e-commerce developments are captured within GDP and other BEA statistics. But you can't isolate the digital economy's contributions within these core accounts. The digital economy project is developing tools to measure the economic effects of fast-changing technologies, to calculate their contributions to GDP, and to understand their effects on global supply chains.

This project seeks to improve measures of high-tech goods and services, including valuing digital-enabling infrastructure, e-commerce transactions, and digital media, and to advance research into the sharing economy and free digital content.

Distribution of Personal Income

BEA is actively engaged in efforts to measure the distribution of personal income, researching the means, methods, and processes necessary to publish regular measures. BEA plans to release prototype measures within the 2020 calendar year, collect feedback on them, and refine methodology before finalizing a regular publication schedule. The current effort builds on at least a decade of BEA research and will offer insights into how American households share in overall economic growth.

Coastal Areas

Whether they're situated near the Atlantic, Pacific, or Arctic oceans or around the Great Lakes, the diverse coastal areas of the United States share some similar issues, such as maritime industries, natural resources, coastal development, and public access to the waters. Economic Information for Coastal Areas brings BEA's data about these states and counties together in one handy place.

Researching coastal economies? Want to know how much people living in coastal areas earn? This tool highlights personal income and industry earnings for coastal states and counties. Coastal states' GDP statistics are also included. It's a joint project with the National Oceanic and Atmospheric Administration, which provided the definition for coastal areas.

Household Production

What's the value of unpaid work done in the home – things like cooking, cleaning, watching the kids, and so forth? Economists have long recognized the importance of such work. But these unpaid tasks aren't included in BEA' calculation of the nation's gross domestic product, partly because they can't be tracked through marketplace transactions. We researched the monetary value of this labor to create the Household Production Satellite Account, which estimates how much larger GDP would be if unpaid household tasks were included, and also shows trends in household work over time.

Going forward, we're exploring the feasibility of producing a set of household production statistics each year.

Integrated Macroeconomic Accounts

These tables provide a comprehensive picture of the U.S. economy, showing production, income, financial flows, and changes in net worth on the balance sheets of households, businesses, and governments.The Integrated Macroeconomic Accounts were developed jointly with the Federal Reserve Board. They bring together data from BEA's National Income and Product Accounts and the Fed's Flow of Funds accounts, using consistent definitions, and present the information in a unified framework. This project fills information gaps and enhances the international comparability of U.S. statistics.

Personal income decreased $543.5 billion (2.7 percent) in August according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $570.9 billion (3.2 percent) and personal consumption expenditures (PCE) increased $141.1 billion (1.0 percent).

Real DPI decreased 3.5 percent in August and Real PCE increased 0.7 percent . Federal economic recovery payments slowed, as pandemic-related assistance programs begin to wind down. The full economic effects of the COVID-19 pandemic cannot be quantified in the personal income and outlays estimate because the impacts are generally embedded in source data and cannot be separately identified. The decrease in personal income in August was more than accounted for by a decrease in unemployment insurance benefits, based primarily on unemployment claims data from the Department of Labor’s Employment and Training Administration (table 3). In particular, the Federal Pandemic Unemployment Compensation program which provided a temporary weekly supplemental payment of $600 for those receiving unemployment benefits expired on July 31.

Trade Gap

The U.S. monthly international trade deficit increased in August 2020 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $63.4 billion in July (revised) to $67.1 billion in August, as imports increased more than exports. The previously published July deficit was $63.6 billion. The goods deficit increased $3.0 billion in August to $83.9 billion. The services surplus decreased $0.7 billion in August to $16.8 billion.

Exports
Exports of goods and services increased $3.6 billion, or 2.2 percent, in August to $171.9 billion. Exports of goods increased $3.5 billion and exports of services increased $0.1 billion.

• The increase in exports of goods reflected increases in industrial supplies and materials ($3.9 billion) and in foods, feeds, and beverages ($1.1 billion). A decrease in capital goods ($1.4 billion) partly offset the increases.
• The increase in exports of services reflected increases in other business services ($0.2 billion), in transport ($0.1 billion), and in charges for the use of intellectual property ($0.1 billion). A decrease in travel ($0.2 billion) partly offset the increases.

Imports
Imports of goods and services increased $7.4 billion, or 3.2 percent, in August to $239.0 billion. Imports of goods increased $6.5 billion and imports of services increased $0.8 billion.

• The increase in imports of goods reflected increases in consumer goods ($3.8 billion), in automotive vehicles, parts, and engines ($1.7 billion), and in other goods ($1.1 billion). A decrease in industrial supplies and materials ($1.5 billion) partly offset the increases.
• The increase in imports of services reflected increases in travel ($0.3 billion) and in transport ($0.3 billion).

Labor force participation rate down, employment–population ratio:

The labor force participation rate decreased by 0.3 percentage point to 61.4 percent in September 2020. This was 2.0 percentage points lower than in February and up from a low of 60.2 percent in April.

The employment–population ratio, at 56.6 percent, changed little in September but was 4.5 percentage points lower than in February. The September ratio was up from a low of 51.3 percent in April.

Unempolyment

The unemployment rate declined to 7.9 percent, the U.S. Bureau of Labor Statistics reported today.

These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In September, notable job gains occurred in leisure and hospitality, in retail trade, in health care and social assistance, and in professional and business services. Employment in government declined over the month, mainly in state and local government education.

The unemployment rate declined to 7.9 percent, the U.S. Bureau of Labor Statistics reported today.

These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In September, notable job gains occurred in leisure and hospitality, in retail trade, in health care and social assistance, and in professional and business services. Employment in government declined over the month, mainly in state and local government education.

This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics.

The establishment survey measures nonfarm employment, hours, and earnings by industry.

For more information about the concepts and statistical methodology used in these

Two surveys see the Technical Note.

Household Survey Data

In September, the unemployment rate declined by 0.5 percentage point to 7.9 percent,and the number of unemployed persons fell by 1.0 million to 12.6 million. Both measures have declined for 5 consecutive months but are higher than in February, by 4.4 percentage points and 6.8 million, respectively.

Among the major worker groups, the unemployment rates declined in September for adult

men (7.4 percent), adult women (7.7 percent), Whites (7.0 percent), and Asians (8.9 percent). The jobless rates for teenagers (15.9 percent), Blacks (12.1 percent), and Hispanics (10.3 percent) showed little change over the month.

Among the unemployed, the number of persons on temporary layoff decreased by 1.5 million in September to 4.6 million. This measure is down considerably from the highof 18.1 million in April but is 3.8 million higher than in February. In September, the number of permanent job losers increased by 345,000 to 3.8 million; this measure has risen by 2.5 million since February. The number of unemployed job leavers rose by 212,000 to 801,000 in September. (Job leavers are persons who quit or voluntarily left their previous job and immediately began looking for new employment.)

In September, the number of unemployed persons who were jobless less than 5 weeksincreased by 271,000 to 2.6 million. The number of persons jobless 5 to 14 weeks decreased by 402,000 to 2.7 million, and the number of persons jobless 15 to 26 weeks fell by 1.6 million to 4.9 million. The number of long-term unemployed (those jobless

for 27 weeks or more) increased by 781,000 to 2.4 million.

The labor force participation rate decreased by 0.3 percentage point to 61.4 percent

in September and is 2.0 percentage points lower than in February. The employment-population ratio, at 56.6 percent, changed little over the month but is 4.5 percentage

points lower than in February.

In September, the number of persons employed part time for economic reasons (sometimes

referred to as involuntary part-time workers) declined by 1.3 million to 6.3 million,

reflecting a decrease in the number of persons whose hours were cut due to slack work

or business conditions. The number of involuntary part-time workers is 2.0 million

higher than in February. These individuals, who would have preferred full-time

employment, were working part time because their hours had been reduced or they were

unable to find full-time jobs.

The number of persons not in the labor force who currently want a job, at 7.2 million,

changed little in September; this measure is 2.3 million higher than in February.

These individuals were not counted as unemployed because they were not actively

looking for work during the last 4 weeks or were unavailable to take a job.

Among those not in the labor force who currently want a job, the number of persons

marginally attached to the labor force, at 1.9 million, changed little in September.

These individuals were not in the labor force, wanted and were available for work, and

had looked for a job sometime in the prior 12 months but had not looked for work in the

4 weeks preceding the survey. The number of discouraged workers, a subset of the

marginally attached who believed that no jobs were available for them, was 581,000 in

September, also little changed from the previous month.

Household Survey Supplemental Data

In September, 22.7 percent of employed persons teleworked because of the coronavirus

pandemic, down from 24.3 percent in August. These data refer to employed persons who

teleworked or worked at home for pay at some point in the last 4 weeks specifically

because of the pandemic.

In September, 19.4 million persons reported that they had been unable to work because

their employer closed or lost business due to the pandemic--that is, they did not work

at all or worked fewer hours at some point in the last 4 weeks due to the pandemic.

This measure is down from 24.2 million in August. Among those who reported in

September that they were unable to work because of pandemic-related closures or lost

business, 10.3 percent received at least some pay from their employer for the hours not

worked.

About 4.5 million persons not in the labor force in September were prevented from

looking for work due to the pandemic. This is down from 5.2 million in August. (To be

counted as unemployed, by definition, individuals must either be actively looking for

work or on temporary layoff.)

These supplemental data come from questions added to the household survey beginning in

May to help gauge the effects of the pandemic on the labor market. The data are not

seasonally adjusted. Tables with estimates from the supplemental questions for all

months are available online at

www.bls.gov/cps/effects-of-the-coronavirus-covid-19-pandemic.htm.

Establishment Survey Data

Total nonfarm payroll employment rose by 661,000 in September, following larger gains

in the prior 4 months. In September, nonfarm employment was below its February level

by 10.7 million, or 7.0 percent. Notable job gains occurred in leisure and hospitality,

in retail trade, in health care and social assistance, and in professional and business

services. Employment declined in government, mainly in state and local government education.

Employment in leisure and hospitality increased by 318,000 in September, with almost

two-thirds of the gain occurring in food services and drinking places (+200,000).

Despite job growth totaling 3.8 million over the last 5 months, employment in food

services and drinking places is down by 2.3 million since February. Amusements,

gambling, and recreation (+69,000) and accommodation (+51,000) also added jobs in

September.

Retail trade added 142,000 jobs over the month, with gains widespread in the industry.

Clothing and clothing accessories stores (+40,000) accounted for about one-fourth of

the over-the-month change in retail trade. Notable employment increases also occurred

in general merchandise stores (+20,000), motor vehicle and parts dealers (+16,000), and

health and personal care stores (+16,000). Employment in retail trade is 483,000 lower

than in February.

Employment in health care and social assistance rose by 108,000 in September but is

down by 1.0 million since February. Health care added 53,000 jobs in September, with

continued growth in offices of physicians (+18,000), home health care services

(+16,000), and offices of other health practitioners (+14,000). Social assistance added

55,000 jobs, mostly in individual and family services (+32,000) and in child day care

services (+18,000).

Professional and business services added 89,000 jobs in September. Employment increased

in services to buildings and dwellings (+22,000), architectural and engineering

services (+13,000), and computer systems design and related services (+12,000). Despite

gains of 910,000 since April, employment in professional and business services is 1.4

million lower than in February.

Employment in transportation and warehousing rose by 74,000 in September. Within the

industry, job gains continued in warehousing and storage (+32,000), transit and ground

passenger transportation (+21,000), and couriers and messengers (+10,000). Although the

industry has added 291,000 jobs since May, employment in transportation and warehousing

is 304,000 lower than in February.

Manufacturing added 66,000 jobs over the month. Durable goods accounted for about two-

thirds of the gain, led by motor vehicles and parts (+14,000) and machinery (+14,000).

Despite gains over the past 5 months, employment in manufacturing is 647,000 below

February's level.

Financial activities added 37,000 jobs in September. Job growth occurred in real estate

and rental and leasing (+20,000) and in finance and insurance (+16,000). Employment in

financial activities is 162,000 below the level in February.

In September, the other services industry added 36,000 jobs, largely in membership

associations and organizations (+31,000). Employment in other services is 495,000

lower than in February.

Employment in information grew by 27,000 in September but is down by 276,000 since

February. Motion picture and sound recording industries accounted for most of the

September gain (+23,000).

Construction employment increased by 26,000 in September, with growth in residential

specialty trade contractors (+16,000) and construction of buildings (+12,000).

Construction employment is below its February level by 394,000.

In September, wholesale trade added 19,000 jobs, with gains in both the durable and

nondurable goods components (+13,000 and +8,000, respectively). Employment in

wholesale trade is 312,000 lower than in February, Government employment declined by 216,000 in September. Employment in local government education and state government education fell by 231,000 and 49,000, respectively. A decrease of 34,000 in federal government was driven by a decline in

the number of temporary Census 2020 workers. Partially offsetting these declines, employment in local government, excluding education, rose by 96,000.

Employment in private education decreased by 69,000 in September, after a gain of

similar magnitude in August. Employment in the industry is down by 355,000 since

February.

Employment changed little in mining in September (+1,000). Employment in the

industry is down by 133,000 since a recent peak in January 2019; about three-fourths

of this decline has occurred since February of this year.

In September, average hourly earnings for all employees on private nonfarm payrolls,

at $29.47, changed little (+2 cents). Average hourly earnings of private-sector

production and nonsupervisory employees were also little changed in September

(+1 cent) at $24.79. The large employment fluctuations over the past several months--

especially in industries with lower-paid workers--complicate the analysis of recent

trends in average hourly earnings. (See tables B-3 and B-8.)

The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour

to 34.7 hours in September. In manufacturing, the workweek rose by 0.2 hour to 40.2

hours, and overtime decreased by 0.1 hour to 2.9 hours. The average workweek for

production and nonsupervisory employees on private nonfarm payrolls rose by 0.1 hour

to 34.1 hours.

The change in total nonfarm payroll employment for July was revised up by 27,000,

from +1,734,000 to +1,761,000, and the change for August was revised up by 118,000,

from +1,371,000 to +1,489,000. With these revisions, employment in July and August

combined was 145,000 more than previously reported.

Business Cycle:

Meaning of Business Cycle:

The period of high income, output and employment has been called the period of expansion, upswing or prosperity, and the period of low income, output and employment has been described as contraction, recession, downswing or depression.The economic history of the free market capitalist countries has shown that the period of economic prosperity or expansion alternates with the period of contraction or recession.

These alternating periods of expansion and contraction in economic activity has been called business cycles. They are also known as trade cycles. J.M. Keynes writes, “A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentages with periods of bad trade characterized by falling prices and high unemployment percentages.”

A noteworthy feature about these fluctuations in economic activity is that they are recurrent and have been occurring periodically in a more or less regular fashion. Therefore, these fluctuations have been called business cycles. It may be noted that calling these fluctuations as ‘cycles’ means they are periodic and occur regularly, though perfect regularity has not been observed.

The duration of a business cycle has not been of the same length; it has varied from a minimum of two years to a maximum of ten to twelve years, though in the past it was often assumed that fluctuations of output and other economic indicators around the trend showed repetitive and regular pattern of alternating periods of expansion and contraction.However, actually there has been no clear evidence of very regular cycles of the same definite duration. Some business cycles have been very short lasting for only two to three years, while others have lasted for several years. Further, in some cycles there have been large swings away from trend and in others these swings have been of moderate nature.

A significant point worth noting about business cycles is that they have been very costly in the economic sense of the word. During a period of recession or depression many workers lose their jobs and as a result large-scale unemployment, which causes loss of output that could have been produced with full employment of resources, come to prevail in the economy.

Besides, during depression many businessmen go bankrupt and suffer huge losses. Depression causes a lot of human sufferings and lowers the levels of living of the people. Fluctuations in economic activity creates a lot of uncertainty in the economy which causes anxiety to the individuals about their future income and employment opportunities and involve a great risk for long-run investment in projects. Who does not remember the great havoc caused by the great depression of the early thirties of the present century?

Even boom when it is accompanied by inflation has its social costs. Inflation erodes the real incomes of the people and makes life miserable for the poor people. Inflation distorts allocation of resources by drawing away scarce resources from productive uses to unproductive ones. Inflation redistributes income in favour of the richer sections and also when inflation rate is high, it impedes economic growth.

About the harmful effects of the business cycles Crowther writes, “On the one hand, there is the misery and shame of unemployment with all the individual poverty and social disturbances that it may create. On the other hand, there is the loss of wealth represented by so much wasted and idle labour and capital.”

Phases of Business Cycles:

Business cycles have shown distinct phases the study of which is useful to understand their underlying causes. These phases have been called by different names by different economists.

Generally, the following phases of business cycles have been distinguished:

1. Expansion (Boom, Upswing or Prosperity)

2. Peak (upper turning point)

3. Contraction (Downswing, Recession or Depression)

4. Trough (lower turning point)

The four phases of business cycles have been shown in Fig. 13.1 where we start from trough or depression when the level of economic activity i.e., level of production and employment is at the lowest level.

With the revival of economic activity the economy moves into the expansion phase, but due to the causes explained below, the expansion cannot continue indefinitely, and after reaching peak, contraction or downswing starts. When the contraction gathers momentum, we have a depression. The downswing continues till the lowest turning point which is also called trough is reached.

In this way cycle is complete. However, after remaining at the trough for some time the economy revives and again the new cycle starts.

Haberler in his important work on business cycles has named the four phases of business cycles as:

(1) Upswing,

(2) Upper turning point,

(3) Downswing, and

(4) Lower turning point.

There are two types of patterns of cyclic changes. One pattern is shown in Fig. 13.1 where fluctuations occur around a stable equilibrium position as shown by the horizontal line. It is a case of dynamic stability which depicts change but without growth or trend.

The second pattern of cyclical fluctuations is shown in Fig. 13.2 where cyclical changes in economic activity take place around a growth path (i.e., rising trend). J.R. Hicks in his model of business cycles explains such a pattern of fluctuations with long-run rising trend in economic activity by imposing factors such as autonomous investment due to population growth and technological progress causing economic growth on the otherwise stationary state. We briefly explain below various phases of business cycles.

Expansion and Prosperity:

In its expansion phase, both output and employment increase till we have full employment of resources and production is at the highest possible level with the given productive resources. There is no involuntary unemployment and whatever unemployment prevails is only of frictional and structural types.

Thus, when expansion gathers momentum and we have prosperity, the gap between potential GNP and actual GNP is zero, that is, the level of production is at the maximum production level. A good amount of net investment is occurring and demand for durable consumer goods is also high. Prices also generally rise during the expansion phase but due to high level of economic activity people enjoy a high standard of living.

Then something may occur, whether banks start reducing credit or profit expectations change adversely and businessmen become pessimistic about future state of the economy that brings an end to the expansion or prosperity phase. Economists differ regarding the possible causes of the end of prosperity and start of downswing in economic activity.

Monetarists have argued that contraction in bank credit may cause downswing. Keynes has argued that sudden collapse of expected rate of profit (which he calls marginal efficiency of capital, MEC) caused by adverse changes in expectations of entrepreneurs lowers investment in the economy. This fall in investment, according to him, causes downswing in economic activity.

Contraction and Depression:

As stated above, expansion or prosperity is followed by contraction or depression. During contraction, not only there is a fall in GNP but also level of employment is reduced. As a result, involuntary unemployment appears on a large scale. Investment also decreases causing further fall in consumption of goods and services.

At times of contraction or depression prices also generally fall due to fall in aggregate demand. A significant feature of depression phase is the fall in rate of interest. With lower rate of interest people’s demand for money holdings increases. There is a lot of excess capacity as industries producing capital goods and consumer goods work much below their capacity due to lack of demand.

Capital goods and durable consumer goods industries are especially hit hard during depression. Depression, it may be noted, occurs when there is a severe contraction or recession of economic activities. The depression of 1929-33 is still remembered because of its great intensity which caused a lot of human suffering.

Trough and Revival:

There is a limit to which level of economic activity can fall. The lowest level of economic activity, generally called trough, lasts for some time. Capital stock is allowed to depreciate without replacement. The progress in technology makes the existing capital stock obsolete. If the banking system starts expanding credit or there is a spurt in investment activity due to the emergence of scarcity of capital as a result of non-replacement of depreciated capital and also because of new technology coming into existence requiring new types of machines and other capital goods.

The stimulation of investment brings about the revival or recovery of the economy. The recovery is the turning point from depression into expansion. As investment rises, this causes induced increase in consumption. As a result industries start producing more and excess capacity is now put into full use due to the revival of aggregate demand. Employment of labour increases and rate of unemployment falls. With this the cycle is complete.

Features of Business Cycles:

Though different business cycles differ in duration and intensity, they have some common features which we explain below:

1. Business cycles occur periodically. Though they do not show same regularity, they have some distinct phases such as expansion, peak, contraction or depression and trough. Further the duration of cycles varies a good deal from minimum of two years to a maximum of ten to twelve years.

2. Secondly, business cycles are synchronic. That is, they do not cause changes in any single industry or sector but are of all-embracing character. For example, depression or contraction occur simultaneously in all industries or sectors of the economy.

Recession passes from one industry to another and chain reaction continues till the whole economy is in the grip of recession. Similar process is at work in the expansion phase, prosperity spreads through various linkages of input-output relations or demand relations between various industries, and sectors.

3. Thirdly, it has been observed that fluctuations occur not only in level of production but also simultaneously in other variables such as employment, investment, consumption, rate of interest and price level.

4. Another important feature of business cycles is that investment and consumption of durable consumer goods such as cars, houses, refrigerators are affected most by the cyclical fluctuations. As stressed by J.M. Keynes, investment is greatly volatile and unstable as it depends on profit expectations of private entrepreneurs.

These expectations of entrepreneurs change quite often making investment quite unstable. Since consumption of durable consumer goods can be deferred, it also fluctuates greatly during the course of business cycles.

5. An important feature of business cycles is that consumption of non-durable goods and services does not vary much during different phases of business cycles. Past data of business cycles reveal that households maintain a great stability in consumption of non-durable goods.

6. The immediate impact of depression and expansion is on the inventories of goods. When depression sets in, the inventories start accumulating beyond the desired level. This leads to cut in production of goods. On the contrary, when recovery starts, the inventories go below the desired level. This encourages businessmen to place more orders for goods whose production picks up and stimulates investment in capital goods.

7. Another important feature of business cycles is that profits fluctuate more than any other type of income. The occurrence of business cycles causes a lot of uncertainty for businessmen and makes it difficult to forecast the economic conditions.

During the depression period profits may even become negative and many businesses go bankrupt. In a free market economy profits are justified on the ground that they are necessary payments if the entrepreneurs are to be induced to bear uncertainty.

8. Lastly, business cycles are international in character. That is, once started in one country they spread to other countries through trade relations between them. For example, if there is a recession in the USA, which is a large importer of goods from other countries, it will cause a fall in demand for imports from other countries whose exports would be adversely affected causing recession in them too. Depression of 1930s in USA and Great Britain engulfed the entire capital world.