lectures in macroeconomics- charles w. upton unemployment and business cycles
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![Page 1: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/1.jpg)
Lectures in Macroeconomics- Charles W. Upton
Unemployment and Business Cycles
SSRSLR
D
H’ H*
w*
w’
Here, U = Un
![Page 2: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/2.jpg)
Unemployment and Business Cycles
Counter-Cyclical andPro-Cyclical Indicators
Business Failures Counter-Cyclical New Business Starts Pro-Cyclical Unemployment Counter-Cyclical Average Work Week Pro-Cyclical Average Wage Rate Pro-Cyclical Capital Utilization Pro Cyclical GDP Pro-Cyclical
![Page 3: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/3.jpg)
Unemployment and Business Cycles
Counter-Cyclical andPro-Cyclical Indicators
Business Failures Counter-Cyclical New Business Starts Pro-Cyclical Unemployment Counter-Cyclical Average Work Week Pro-Cyclical Average Wage Rate Pro-Cyclical Capital Utilization Pro Cyclical GDP Pro-Cyclical
![Page 4: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/4.jpg)
Unemployment and Business Cycles
A Change in Demand
SSRSLR
D
H’ H*
w*
w’
Here, U = Un
![Page 5: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/5.jpg)
Unemployment and Business Cycles
A Change in Demand
D’
SSRSLR
D
H’ H*
w*
w’
![Page 6: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/6.jpg)
Unemployment and Business Cycles
A Change in Demand
D’
SSRSLR
D
H’ H*
w*
w’We know a temporary demand reduction causes a
business cycle
![Page 7: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/7.jpg)
Unemployment and Business Cycles
A Change in Demand
D’
SSRSLR
D
H’ H*
w*
w’We know a temporary demand reduction causes a
business cycle
So what does it do to
unemployment?
![Page 8: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/8.jpg)
Unemployment and Business Cycles
A Modest Proposal
D’
SSRSLR
D
H’ H*
w*
w’We know a temporary demand reduction causes a
business cycle
So what does it do to
unemployment?
*
*
H
HHUU n
![Page 9: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/9.jpg)
Unemployment and Business Cycles
A Modest Proposal
D’
SSRSLR
D
H’ H*
w*
w’We know a temporary demand reduction causes a
business cycle
So what does it do to
unemployment?
*
*
H
HHUU n
Ergo, U is counter cyclical
![Page 10: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/10.jpg)
Unemployment and Business Cycles
The Formal Relation
• GDP– Actual GDP = what you think it is
– Potential GDP = GDP when U = Un
![Page 11: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/11.jpg)
Unemployment and Business Cycles
The Formal Relation
• GDP– Actual GDP = what you think it is
– Potential GDP = GDP when U = Un
• Employment– Actual Employment = CLF(1-U)
– Potential Employment = CLF(1-Un)
![Page 12: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/12.jpg)
Unemployment and Business Cycles
GDP and Unemployment
3
2
3
1
)]1([ tttActual UCLFKAGDP
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Unemployment and Business Cycles
Potential GDP & the Natural Rate
3
2
3
1
)]1([ tnttPotential UCLFKAGDP
![Page 14: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/14.jpg)
Unemployment and Business Cycles
GDP and Unemployment
3
2
3
1
3
2
3
1
)]1([
)]1([
tttActual
tnttPotential
UCLFKAGDP
UCLFKAGDP
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Unemployment and Business Cycles
The Relation
)(3
2n
Actual
ActualPotential UUGDP
GDPGDP
![Page 16: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/16.jpg)
Unemployment and Business Cycles
Unemployment and GDP
Actual
ActualPotentialn GDP
GDPGDPUU
5.1
![Page 17: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/17.jpg)
Unemployment and Business Cycles
An Illustration
)(3
2n
Actual
ActualPotential UUGDP
GDPGDP
GDP is $10 trillion; Un = 4%;U = 7%
![Page 18: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/18.jpg)
Unemployment and Business Cycles
An Illustration
Trillion $10.2GDP
)47(3
2
10$
10$
Potential
PotentialGDP
GDP is $10 trillion; Un = 4%;U = 7%
![Page 19: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/19.jpg)
Unemployment and Business Cycles
A Second Illustration
)(3
2n
Actual
ActualPotential UUGDP
GDPGDP
GDP grew from $10 Trillion to $10.45 TrillionWhat will happen to U?
![Page 20: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/20.jpg)
Unemployment and Business Cycles
A Second Illustration
UGDP
GDP
GDP
GDP
Actual
Actual
Potential
Potential
3
2
GDP grew from $10 Trillion to $10.45 TrillionWhat will happen to U?
![Page 21: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/21.jpg)
Unemployment and Business Cycles
A Second Illustration
UGDP
GDP
GDP
GDP
Actual
Actual
Potential
Potential
3
2
GDP grew from $10 Trillion to $10.45 TrillionWhat will happen to U?
year a %5.3
Potential
Potential
GDP
GDP
![Page 22: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/22.jpg)
Unemployment and Business Cycles
A Second Illustration
%5.1
3
2%5.4%5.3
U
U
GDP grew from $10 Trillion to $10.45 TrillionWhat will happen to U?
![Page 23: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/23.jpg)
Unemployment and Business Cycles
Okun’s Law
)(3
2n
Actual
ActualPotential UUGDP
GDPGDP
![Page 24: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/24.jpg)
Unemployment and Business Cycles
Okun’s Law
)(2
1n
Actual
ActualPotential UUGDP
GDPGDP
![Page 25: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/25.jpg)
Unemployment and Business Cycles
The Facts
Change in GDP vs Change in U
-1.5000-1.0000-0.50000.00000.50001.00001.50002.0000
-20.0000 -10.0000 0.0000 10.0000 20.0000
Change in GDP
Ch
an
ge
in U
![Page 26: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/26.jpg)
Unemployment and Business Cycles
The Facts
Change in GDP vs Change in U
-1.5000-1.0000-0.50000.00000.50001.00001.50002.0000
-20.0000 -10.0000 0.0000 10.0000 20.0000
Change in GDP
Ch
an
ge
in U
![Page 27: Lectures in Macroeconomics- Charles W. Upton Unemployment and Business Cycles](https://reader034.vdocuments.net/reader034/viewer/2022051619/56649d4d5503460f94a2bd0f/html5/thumbnails/27.jpg)
Unemployment and Business Cycles
End
©2004 Charles W. Upton. All rights reserved
Unemployment data from BLS, GDP data from Dept of
Commerce