ECON 1200 1st Edition Lecture 19- Business Cycle—Alternating periods of economic expansion and economic recessiono The business cycle generates cyclical unemployment which causes the unemployment rate to deviate from the natural rate of unemployment - Cyclical Unemployment Rate—Unemployment rate-natural rate of unemployment- When only unemployment in an economy is frictional and structural, the cyclical unemployment rate is zero and the economy is said to be at full employment- During recessions, sales decrease, so firms decrease production and lay off workers, causing the cyclical unemployment rate to be positive and the unemployment rate to rise above the natural rate of unemploymento Jobs are not available for people who want to work- During expansions, sales increase, so firms increase production and hire workers, including somepeople who were frictionally or structurally unemployed, causing the cyclical unemployment rate to be negative and the unemployment rate to fall below the natural rate of unemployment - Government policies affect unemployment o Government job search and worker retraining programs decrease unemploymento Government unemployment insurance benefits and other programs that decrease the opportunity cost of job search increase unemploymento Minimum wage laws increase unemploymento Labor unions and efficiency wages also keep some wages above their equilibrium levels, causing unemployment Labor unions are organizations of workers that bargain with employers to raise wages and working conditions- Economists have found that union workers typically earn 10-20% more that similar workers who do not belong to unions, which implies that unions raise the wage above the equilibrium wageo Good for those who get union jobs, bad for those who don’t because of unemployment- Efficiency wages—an above average market wage that a firm pays to increase worker’s productivityo Especially effective in firms in which it is difficult to monitor workersThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a