 Expansion  Peak  Recession  Trough

 GDP rises  More jobs are available  Unemployment rate falls  National income expands  People borrow to buy goods

 Expansion halts  Causes that prevent continued growth: › Limited raw materials – overproduction? › Limited labor - price of labor rises › Limited financial capital – rising interest rates › Shortages of land, labor, and capital result, creating high prices and cooling demand, beginning the recession phase.

 Consumers slow their spending.  First durable goods  Sellers reduce inventory by cutting prices  Production orders drop  Production drops  Workers aren’t needed and are laid off  Whirlpool effect! Downward spiral.

 Low prices  High unemployment  Depressed incomes  Over an extended period of time, the recession becomes a depression.

 Sunspot Theory – affects agriculture  Psychological Theory – degree of confidence  Monetary Theory – Changes in the money supply and interest rates  Technology/Political Theories

 Milton Friedman – Monetary Theory  A Monetary History of the United States

 Two problems that come with the business cycle: 1. Unemployment (comes with recession) 2. Inflation (comes with expansion)

 One goal of a nation is “full employment.”  Why is employment important?  What are some effects of unemployment?

 Definition: the percentage of the LABOR FORCE that is not employed but is LOOKING FOR WORK.

 Those under 16 and over 65.  Those in the armed forces.  Those in school, prison, or asylums.

 Homemakers and others who do not work for money.  Discouraged workers.

 Unemployment Rate = # of unemployed/# of people in the labor force.  Why is the unemployment rate important? › It is an indicator of the health of the economy.

 Some workers don’t get counted.  Doesn’t include discouraged workers.  Doesn’t take into account the “underemployed.”  May count people who are between jobs as unemployed.

 Frictional – those who are between jobs, demonstrates a competitive labor market  Structural – workers’ skills don’t match available jobs  Seasonal – Some jobs are available only at certain times of the year. Ex. Christmas tree farm workers.  Cyclical – result of a downturn in the business cycle, cuts in production

 Texas Workforce Commission  Job Training  Drawbacks?  Can government eliminate unemployment by controlling the business cycle?

 Free market answer to the cause of unemployment?  Supply and demand  Difference between price that sellers of labor (workers) are asking and the price that buyers of labor (businesses) are willing to pay.

 What effect does a government- mandated minimum wage have on employment?

 What is a Christian’s role in unemployment?