Question 1. As we know there exist different phases of business cycle in an economy.
(a). Explain what happens during each phase of the cycle with: (10)
output
employment
inflation
Answers
Answer:
Different phases of a business cycle explained. The stage when the maximum limit of growth is attained marks the reversal in trend of economic growth. 1. In the expansion phase, there is increase in economic activity such as production, employment, output, wages, profits, demand and supply of products and sales.
Employment"?
Full employment equals between 4 and 5 % unemployment !!!
As we discussed above, full employment results in reducing scarcity by producing the economy's potential level of output. The unemployment rate in 2007 was 4.5%, that amounts to about 71 million people unemployed. Remember that unemployed means not working but looking. So with 7.1 million people unemployed we still have FULL EMPLOYMENT!!
How can 4% to 5% unemployment be considered full employment?
How can 7.1 million people looking for work be called "full employment?
What is Inflation?
Inflation is the annual rate of increase in the price level.
In January of 2007 the inflation rate was 2.1 %. But what does this mean? 2.1% of what? An inflation rate of 2.1% in January of 2007 means that the price level was 2.1% higher than it was in January of 2006. In the chapter on aggregate supply and aggregate demand we learned that the price level is "the average level of prices in the economy". We find the price level on the vertical axis of the AS-AD graph.