Question

For each of the following concepts, describe what it is, how it affects you and/or the economy as a whole and talk about its importance in our society:

1.  business cycle

2. deflation

3.  inflation and the CPI

4.  cyclical unemployment

5.  frictional ynemployment

6. structural unemployment

7. recession

8. discouraged worker effect

9. encouraged worker effect

10. labor force productivity

Answer 1

1. Business cycle is the upward and downward movement of the GDP. Upward movement means expansion it causes higher growth, high employment and prodution. While downward movement means contaction it causes low growth, lower employment and less production in the economy.

2. Deflation means decrease in the price level of goods and services. It affects the economy negatively because it occurs due to shortage of money in circulation. Deflation causes lower consumer demand, lower production, and lower employment.

3. CPI means the average change in the price after a particular time that consumer pay for goods and services. In other words we can say that CPI measure the inflation rate. If inflation rate is 2 to 3 % it is good for the economy but more than that it causes harmful for the economy because it reduce the real value of money.

4. Cyclical unemployment arises when over all demand for goods and services in an economy cannot generate full employment. It occurs during the time of deflation or economic contraction.

5. Friction unemployment is exists always in the economy because people who are in the economy move from one job to another. This is due to mobility of labour which means labour move in the economy and have no barrier for them. It does not affect the economy negatively.

6. structural unemployment arises when there reorganization of the industry for example change in technology, innovation of new production method etc. Sometimes structural unemloyment put negative affect on the economy because change in technology means labour are unemployed permanently and these labour also increase natural unemployment rate.

7 Recession is the situation when business cycle of the economy shows contraction. Recession in the economy means sales and revenue decreases and businesses are not expanding.

8 Discouraged workers are those who stop finding for job, now they are not consider as unemployed or even not counted in the labour force. Discoraged worker put negative affect on the economy because now they depend on the economy and if they not fullfil his basic need then increase in the illegal activity in the country increases.

9 Encourage workers is the labour force of the country who are finding for a job if they do not get the job in the economy they counted as unemployed. And increase the unemployment rate of the country.

10. If the Labour force of the country is productive then it means higher production at lower cost, it helps people to spend more because they get goods and services at lower cost and finally increase employment in the economy to meet the increasing demands for good and services.