Question

1. Define the terms expansion and recession. How is the existence of a recession determined?

2. What are the relative lengths of expansions versus recessions? How have the average lengths of each changed over time?

3. How is business cycle volatility measured? Has volatility changed over time?

4. Define the terms employed, unemployed, labor force, discouraged work- ers, and labor force participation rate.

5. What is seasonal data adjustment, and why do macroeconomists prefer to study seasonally adjusted data?

6. What is consumption smoothing, and how does it arise in the life-cycle model?

7. Suppose that you are given the following information about the labor market. The amounts shown are in thousands.

   1. (a) For each year, calculate the size of the labor force.

   2. (b) For each year, calculate the labor force participation rate.

   3. (c) For each year, calculate the unemployment rate.

   4. (d) Do the data suggest that the number of discouraged workers might have increased in a particular year? If so, which year?

8. Assume that the economy starts out in a steady state characterized by the following values: A = 4, N = 200, α = 0.5; and β = 0.3 Suppose that A rises for only one period to 4.5, and then returns to its initial value of 4.

   (a) Trace out the resulting time path for the capital-labor ratio and total output over the next four periods.

   1

Year	Population	Employment	Unemployment
1997	188,049	117,914	6,874
1998	189,765	116,877	8,426
1999	191,576	117,598	9,384

2. (b) What are the new steady-state values for the capital-labor ratio and total output?

3. (c) In what sense does the path of output constitute a ”business cy- cle”? In what sense does the output path not constitute a ”busi- ness cycle”?

9. You
and a strong believer in real business cycle theory. For the past several months, economic and financial data have indicated that real. GDP is falling. The President has asked for your opinion about the correct policy response. What do you tell him?

The spreadsheet is for question 7, I dont know how it got moved to question 8. Thank you!

Answer 1

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Question 1

Expansion - Expansion is the phase of the business cycle when the economy moves from a trough to a peak. It is a period when the level of business activity surges and gross domestic product (GDP) expands until it reaches a peak. A period of expansion is also known as an economic recovery.

Recession- A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income. The technical definition of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP), although the National Bureau of Economic Research does not necessarily need to see this occur to call a recession.

Existence of recession is determined by and when-

• The unemployment rate will struggle to push lower
• Inflation has begun picking up
• Home sales are beginning to decline in key markets
• Credit card debt and late payments are on the rise at the economy level
• The economic cycle suggests a contraction