KOn My iPhone Ih Total Points: 25 Use the following charts and text to answer th

Question

KOn My iPhone Ih Total Points: 25 Use the following charts and text to answer the questions that follow: The unemployment rate in the US reduced to its lowest level (4.6%) in November since 2007 (See Chart 1). This suggest that we are nearing the full employment level. Economists, however, warn against interpreting the low unemployment number as 'all good news' for the economy. Chart 1. Unemployment Rate (Y-Axis) and Month/Year (X-Axis) 1 0 0106 01/07 o1/0e 0109 0110 0111 0112 0113 01/14 015 011o

Explanation / Answer

(1)

(a) Unemployment rate is the proportion of the labor force that is unemployed (people who have lost or quit their jobs and who have actively searched for a job in the four weeks prior to the day of measurement of unemployment). Since labor force comprises employed and unemployed people,

Unemployment rate = Number of workers unemployed / (Number unemployed + Number employed)

(b) Full employment refers to the employment rate (proportion of labor force that is actively engaged in full-time and part-time work) that an economy can achieve, when the economy is operating at its maximum capacity using all available and existing resources, factors of production and technology endowment. At full employment level, unemployment comprises only frictional and structural unemployment, since cyclical unemployment is zero.

(c) Economic growth refers to an increase in real output over a period of time. The commonly accepted yardstick of measuring growth is the percentage change in real GDP. When real GDP growth rate is positive, economic growth is positive, and when real GDP growth rate is positive, economic growth is negative. A continued period of negative economic growth signifies a recessionary period.

(d) Recession is the phase of business cycle when there is a continued period of negative economic growth, which results from a persistent fall in aggregate demand, causing deflation and low real GDP and output. Employment falls, unemployment rises and unemployment rate is higher than full employment level due to existence of cyclical unemployment.

(e) Inflation is sustained increase in general price level in the economy. When aggregate price index (measured by percentage change in CPI or percentage change in GDP deflator) is increasing, there is inflation and when aggregate price index is decreasing, there is deflation. It may be noted that when growth rate of aggregate price index is falling, this is called disinflation where inflation rate is decreasing over time, but is still positive.

NOTE: As per Chegg Answering Policy, first question has been answered.

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