Macroeconomics Activity 3-7 Answer Key

[Lina Drury]

Openthe PowerPoint titled The Business Cycle. Slide 2: Explain that these will be the key words used to discuss the business cycle. Tell students that a business cycle is just a period of expansion and contraction of the economy, measured by changes in the real GDP, or Gross Domestic Product. Slide 3: Walk students through the phases of the business cycle, discussing each phase and giving students enough time to copy the slide into the notes. Explain the following: In the expansion part of the cycle, GDP is growing, unemployment is going down, but inflation may be rising. In the contraction part of the cycle, GDP is shrinking, unemployment is growing, and inflation may stall or shrink. Slides 4 and 5 are the vocabulary terms with definitions. Talk about these definitions and give students enough time to copy them. You may also want to go back to slide 3 to discuss them. Slide 6: Have one or more students come to the board to draw and label the business cycle.

Put students in pairs to complete the Business Cycle Activity. Distribute one copy of the cards and answer sheet to each pair of students. Tell students that you will be reading each statement, then giving them one minute to discuss the potential answer with their partner. Once selecting an answer, they should place an X showing their answer and hold up the card corresponding with their answer. Start the activity, stopping to review and discuss student answers after each statement. After completing the activity, ask students if they have any questions about the business cycle.

Distribute a copy of Drawing a Business Cycle activity to each students. Tell students they should review the information and complete the assignment. Debrief the assignment by reviewing student answers. (Answers will vary, but be sure each graph has the four phases of the business cycle. Unemployment should increase during a recession and decrease during a recovery.)

Have students complete the worksheet The Great Recession. The article can be accessed electronically or printed out for students. Tell students to read the article and answer the questions from the reading. Review their answers and answer any questions they may have.

Put students into small groups. Randomly assigned each group a 10-year period (1980-1990, 1970-1980, etc.). Have each group visit The Balance web site to plot the GDP for each year in their ten year cycle. Be sure they label the phases of their business cycle and identify the lowest/highest periods of unemployment. You may choose to have them complete this assignment on the computer or with graph paper. Have the groups present their graphs to the class in sequence, explaining the parts of the business cycle for that 10-year period. You may also want them to post their graphs on the board for a historical perspective of the U.S. economy.

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When workers are unemployed, they, their families, and the country as a whole lose. Workers and their families lose wages, and the country loses the goods or services that could have been produced. In addition, the purchasing power of these workers is lost, which can lead to unemployment for yet other workers.

Some people think that to get these figures on unemployment, the government uses the number of people collecting unemployment insurance (UI) benefits under state or federal government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.

Because unemployment insurance records relate only to people who have applied for such benefits, and since it is impractical to count every unemployed person each month, the government conducts a monthly survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940, when it began as a Work Projects Administration program. In 1942, the U.S. Census Bureau took over responsibility for the CPS. The survey has been expanded and modified several times since then. In 1994, for instance, the CPS underwent a major redesign in order to computerize the interview process as well as to obtain more comprehensive and relevant information.

There are about 60,000 eligible households in the sample for this survey. This translates into approximately 110,000 individuals each month, a large sample compared to public opinion surveys, which usually cover fewer than 2,000 people. The CPS sample is selected so as to be representative of the entire population of the United States. In order to select the sample, all of the counties and independent cities in the country first are grouped into approximately 2,000 geographic areas (sampling units). The Census Bureau then designs and selects a sample of about 800 of these geographic areas to represent each state and the District of Columbia. The sample is a state-based design and reflects urban and rural areas, different types of industrial and farming areas, and the major geographic divisions of each state.

Every month, one-fourth of the households in the sample are changed, so that no household is interviewed for more than 4 consecutive months. After a household is interviewed for 4 consecutive months, it leaves the sample for 8 months, and then is again interviewed for the same 4 calendar months a year later, before leaving the sample for good. As a result, approximately 75 percent of the sample remains the same from month to month and 50 percent remains the same from year to year. This procedure strengthens the reliability of estimates of month-to-month and year-to-year change in the data.

Each month, highly trained and experienced Census Bureau employees contact the 60,000 eligible sample households and ask about the labor force activities (jobholding and job seeking) or non-labor force status of the members of these households during the survey reference week (usually the week that includes the 12th of the month). These are live interviews conducted either in person or over the phone. During the first interview of a household, the Census Bureau interviewer prepares a roster of the household members, including key personal characteristics such as age, sex, race, Hispanic ethnicity, marital status, educational attainment, veteran status, and so on. The information is collected using a computerized questionnaire.

Each person is classified according to their activities during the reference week. Then, the survey responses are "weighted," or adjusted to independent population estimates from the Census Bureau. The weighting takes into account the age, sex, race, Hispanic ethnicity, and state of residence of the person, so that these characteristics are reflected in the proper proportions in the final estimates.

Because these interviews are the basic source of data for total unemployment, information must be correct and consistent. Survey respondents are never asked specifically if they are unemployed, nor are they given an opportunity to decide their own labor force status. Their status will be determined based on how they respond to a specific set of questions about their recent activities.

Similarly, interviewers do not decide the respondents' labor force classification. They simply ask the questions in the prescribed way and record the answers. Based on information collected in the survey and definitions programmed into the computer, individuals are then classified as employed, unemployed, or not in the labor force.

All interviews must follow the same procedures to obtain comparable results. Because of the crucial role interviewers have in the household survey, a considerable amount of time and effort is spent maintaining the quality of their work. Interviewers are given intensive training, including classroom lectures, discussion, practice, observation, home-study materials, and on-the-job training. At least once a year, they attend day-long training and review sessions. Also, at least once a year, they are accompanied by a supervisor during a full day of interviewing to determine how well they carry out their assignments.

The survey excludes people living in institutions (for example, a correctional institution or a residential nursing or mental health care facility) and those on active duty in the Armed Forces. The survey is designed so that each person age 16 and over (there is no upper age limit) is counted and classified in only one group. The sum of the employed and the unemployed constitutes the civilian labor force. People not in the labor force combined with those in the civilian labor force constitute the civilian noninstitutional population 16 years and over. Under these concepts, most people are quite easily classified. For example, consider these fictional scenarios:

People are considered employed if they did any work at all for pay or profit during the survey reference week. This includes all part-time and temporary work, as well as regular full-time, year-round employment. Individuals also are counted as employed if they have a job at which they did not work during the survey week, whether they were paid or not, because they were:

Both Garrett and Lisa are considered employed. They fall into a group called unpaid family workers, which includes any person who worked without pay for 15 hours or more per week in a business or farm operated by a family member with whom they live. Unpaid family workers comprise a small proportion of total employment. Most of the employed are either wage and salary workers (paid employees) or self-employed (working in their own business, profession, or farm).

People are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities:

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