The COVID19 crisis has unleashed an economic crisis that is unprecedented in its speed and in its depth, making these very interesting times to study macro-economics.
Lecture 9 of Economics for Everyone describes the anatomy of the business cycle, and relates these swings in macroeconomic activity to a statistic that, as much as any other, speaks directly to the lives of citizens, the unemployment rate.
So in this lecture we describe the anatomy of the business cycle, how macro-economists link changes in GDP from its potential to changes in the unemployment rate, and finally just exactly what is this statistic called the “unemployment rate” and how is it measured by statistical agencies.
Today we are continuing to talk about monetary policy. We have been discussing the issue of how the Federal Reserve Bank should respond to the extent of slack in the economy: when there is high unemployment, the Fed should be increasing aggregate demand, but at full employment more aggregate demand would lead to inflation. It is a difficult problem to find this balance because of lags in the process and host of measurement issues.
The state of the jobs market is best assessed by a number that is not given enough attention by Statistics Canada, and the many media reports based upon its monthly press release.
The headline attention is all soaked up by the unemployment rate and the level of employment, when it really should be something Paul Krugman—the Princeton University economist and New York Times columnist—calls his “favorite gauge” of the employment situation.