Macroeconomics

Answer

Where labor force is the total no. of people in the working age group. (over 16 years)

            Thus, given the above scenario;

                                                                                    0.33

Hence, the unemployment rate in the community is 33%

1. Labor force participation rate

        = 66%

1. Major types of unemployment and their causes

There are three major types of unemployment; namely, frictional, structural and cyclical unemployment.

1. Frictional Unemployment

Refers to the temporary unemployment associated with the search time when able and willing to work are in search for suitable jobs while employers are looking for suitable people to work. In this form of unemployment, people may refuse to take the jobs offered to them due to different interests, and companies may fail to hire people who show up for interview due to unmatched skillsets. The unemployment is usually short-term and is caused mainly by layoffs, voluntary quitting and turnover in the labor to seek better opportunities.  

1. Structural Unemployment

Refers to the form of unemployment related to lack of occupational mobility or movement. It occurs when the economy changes overtime causing creation of new jobs that require new skillsets, while the traditional jobs, especially those that were menial and labor-intensive are replaced by efficient processes and technology. Additionally, the changing economy makes it difficult for low-skilled workers to find long-term secure jobs, and hence remain unemployed. Unlike frictional unemployment, this type of unemployment is usually long-term since people available for work lack the required skills.

• Cyclical Unemployment

Unlike the frictional and structural forms of employment, cyclical unemployment occurs when the demand for goods and service in a given economy can no longer support the required employment (Sexton, 2015). It is caused by economic fluctuations such as economic downturns and recession when companies are forced to downsize to reduce the costs of operation and remain operational.    

2. Costs associated with high inflation

Inflation, whether demand-pull or cost-push, comes with various costs to both the economy, firms and individuals. First, inflation leads to uncertainties and confusion that can discourage both foreign and domestic firms from investing in a given economy, thereby, reducing economic growth. Reduced investment implies that a country will lose competitiveness among its international trade partners. Third, a rise in inflation causes a significant decline in real wages, especially in times of nominal wage restraint, and thus can negatively affect living standards. Additionally, lower wages and increased costs of living means a fall in the level of people’s savings, which can consequently thwart their financial objectives. Other costs of inflation in a given economy include menu costs, income redistribution and the cost of abating the inflation and its effects. 

3. Business Life Cycle and its phases
4. What is business cycle

Business cycle describes a period of fluctuations (contractions and expansions) in the production of goods and services, trade and other business activities in a given economy. According to Lumen Learning (2019), it defines “the upward and downward movements of levels of GDP” and is caused by expectations about the future, capital availability and access, and above all, by the forces of demand and supply. 

1. Effects on Output, Unemployment and Inflation at Each Stage of the Business cycle

Business cycle generally has four stages; namely, expansion, peak, contraction and trough as shown in figure 1 below.

Figure 1: Stages of a Business Cycle show wave-like pattern that vary                                                                                 with GDP (Source: Lumen Learning, 2019). 

1. Expansion

This stage is characterized by increased output, high employment levels and high inflation due to increased prices of goods and services. 

1. Peak

At peak, economy is producing its highest possible output. As a result, employment is at maximum to meet production demand and inflation remains high.

• Contraction

At this stage, there is considerable decline in economic growth and output. Employment drops as a result of firms downsizing and inflation reduces due to subsiding pricing pressures.

1. Trough

Output remains low and unemployment reaches an all-time high as the economy prepares for the next phase or period of contraction and expansion.