Answer the following questions using your textbook and lecture notes. (Type all answers.) (54 pts.)

  1. Explain the business cycle. (1 pt.)
  2. List and explain the four phases of the business cycle. (8 pts.)
  3. List the characteristics of the expansion phase of the business cycle. (5 pts)
  4. When the economy reaches the peak of its business cycle, what three factors prevent further growth? (3 pt.)
  5. List and explain the five theories that attempt to explain the business cycle. (10 pts.)
  6. Who developed the sunspot theory of the business cycle? (1 pt.)
  7. What two major economic problems are associated with downturns and upswings in the business cycle? (2 pts.)
  8. Explain who makes up the labor force. (1 pt.)
  9. When statisticians tabulate the unemployment rate, why are some people who are not working not counted as unemployed? (1 pt.)
  10. Name and explain the four types of unemployment. (8 pts.)
  11. Of the four types of unemployment, which one do many consider to be a “beneficial” type of unemployment? Why?(2 pts.)
  12. How is the “unemployment rate” determined? (1 pt.)
  13. What is the market solution to unemployment? (1 pt.)
  14. Lately the unemployment rate has been reported to be around 9%. Does this number accurately reflect the number of people out of work? Why or Why not?(2 pts.)
  15. Explain the term discouraged worker. (1 pt.)
  16. What are the four flaws in the unemployment statistics?(4 pts.)
  17. How does the free market explain the existence of unemployment? (1 pt.)
  18. What was the name of the act in which Congress first declared that the federal government’s number one priority was maximum employment? (1 pt.)

Characteristics of Business Cycle Phases

Correctly match the descriptions below with the phases of the business cycle. (8 pts.)

  1. Expansion phase
  2. Peak phase
  3. Recession phase
  4. Trough phase

____ 1. The cost of labor and raw materials is falling.

____ 2. Economic expansion reaches its high point.

____ 3. Demand is increasing for almost all goods and services.

____ 4. Consumer pessimism has reached rock bottom.

____ 5. If this phase is severe enough and lasts long enough, economists call it a depression.

____ 6. Real GDP is failing.

____ 7. The unemployment rate is falling.

____ 8. The unemployment rate reaches its lower point.

Calculating the Unemployment Rate

Use the following statistics to complete the table below and to calculate the unemployment rate for an unnamed country. (24 pts.)

Total population239,279,000

Children under 16 years of age 55,695,000

Discouraged workers 11,288,000

Institutionalized persons 3,675,000

Members of the armed services 1,706,000

Employed persons 107,150,000

Those who chose not to participate in the labor force 22,917,000

Adults over 64 years of age 28,540,000

Calculating the Unemployment Rate
Category / Quantity
total population
less:
less:
less:
less:
equals
less:
less:
equals: labor force
less:
equals: unemployed persons
unemployment rate (unemployed/labor force)