3. ECONOMIC CYCLE UNEMPLOYMENT
ECONOMIC CYCLE
• is the combination of decreases and increases in
economic activity
- Periods of economic prosperity are called
expansion
- Periods of economic decline are called recession
• usually lasts 2–10 years and can be divided into four
phases:
– Peak / boom
– Recession / slowdown
– Trough / slump
– Recovery / expansion
• Each phase is characterised by changing
employment, industrial productivity and interest
rates
is the upper turning point of the cycle
• unemployment is at its lowest level
• economy operates at its maximum (most capital and
labour resources are engaged in production)
• inflation starts to grow
• wages rise
• output falls
• business activities slow down
• unemployment grows
• corporate profits turn down
• interest rates fall
is the lowest turning point of the cycle
• usually not long
• low production
• low interest rates
• high unemployment
EXPANSION
• production and employment grow
• inflation rises
• corporate profits are positive
• interest rates are quite low
UNEMPLOYMENT
• is the number of unemployed people compared
to the total labour force usually expressed as the
unemployment rate (as a percentage)
– Impact of unemployment:
– Economic
– much output is lost
– incomes decrease
– Social
– low self-esteem of unemployed
– deterioration of physical and psychological health
KINDS OF UNEMPLOYMENT
• Frictional
– results from the permanent movement of people between regions
and jobs
• Structural
– results from the inbalance between the supply and demand of labour
force
• Cyclical
- depends on the stage of the economic cycle