1. Business Cycles

1. Definitions: A business cycle is the recurrent pattern of rising real GDP followed by falling real GDP.
   
   
2. Historical record: There have been 13 recessions since 1929.
   
   Teaching Strategy: Students are often interested in why business cycles occur. This is a good opportunity to show that economists are not always in agreement about important issues. Contrast the Keynesian view that business cycles are caused by variations in aggregate demand with the view of Schumpeter that business cycles are natural and necessary for creative destruction within the economic system.
   
   
3. Indicators: Those variables that move over the business cycle, include leading indicators, which are useful for forecasting; coincident indicators, which are more immediately available than the GDP; and lagging indicators, which can help identify peaks and troughs in the cycle.
   
   Teaching Strategy: Have your students look up the index of leading indicators and plot the data for last year. Then, help them to interpret the data and make a forecast for the U.S. economy.
   
   

2. Unemployment

1. Definition and measurement: The unemployment rate is the percentage of the labor force that is not working.
   
   Teaching Strategy: Place special emphasis on who is not counted in the labor force.
   
   
2. Interpreting the unemployment rate: The existence of underemployment and discouraged workers tends to make the unemployment rate an underestimation of true unemployment.
   
   
3. The four basic types of unemployment are seasonal, frictional, structural, and cyclical.
   
   
4. The costs of unemployment are measured by economists as the lost output of unemployment in terms of the GDP gap.
   
   
5. The record of unemployment: Women, teenagers, and nonwhites tend to have higher unemployment rates; Europe has a high unemployment rate, while Japans is low.
   
   

3. Inflation
Inflation is a sustained rise in the average level of prices.

Teaching Strategy: Note that for price increases to be inflationary, they must persist over time.

1. Absolute versus relative price changes
   
   Teaching Strategy: Pay special attention to the material on relative versus absolute price changes. If students understand that incentives change only when relative prices change, they will find the concept of the long-run Phillips curve and the long-run aggregate supply curve easier to understand.
   
   
2. Effects of inflation (expected versus unexpected inflation)
   
   Teaching Strategy: Show what the equivalent of $3,000 a month today would be 40 years from now (when the students retire) if the average annual rate of inflation over the next 40 years is 3 percent. Then show what it would be if the average rate of annual rate of inflation is 4 percent.
   
   Teaching Strategy: Be sure to emphasize the distinction between nominal and real interest rates using an example in class.
   
   
3. Types of inflation: Economists often classify inflation in terms of demand-pull and cost-push.
   
   
4. The inflationary record: Inflation is a relatively new problem for the United States.
   
   Teaching Strategy: Emphasize that the costs of inflation are in its redistributional effects.