AP ECON CH. 26
Terms in this set (30)
recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.
the point in a business cycle at which business activity has reached a temporary maximum; the economy is near or at full employment and the level of real output is at or very close to the economy's capacity.
a period of declining real GDP, accompanied by lower real income and higher unemployment.
the point in a business cycle at which business activity has reached a temporary minimum; the point at which a recession has ended and an expansion (recovery begins.
a phase of the business cycle in which real GDP, income, and employment rate rise.
persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work.
the percentage of the labor force unemployed at any time.
employees who have left the labor force because they have not been able to find employment.
a type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available.
a type of unemployment caused by insufficient total spending (or by insufficient aggregate demand)
full-employment rate of unemployment
the unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 and 5 percent in the US because some frictional and structural unemployment is unavoidable.
natural rate of unemployment (NRU)
the full-employment unemployment rate; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation.
the real output (GDP) an economy can produce when it fully employs its available resources.
actual gross domestic product minus potential output; may be either a positive amount (a positive GDP gap) or a negative amount (a negative GDP gap).
the generalization that any 1-percentage-point rise in the unemployment rate above the full-employment unemployment rate is associated with a rise in the negative GDP gap by 2 percent of potential output (potential GDP).
a rise in the general level of prices in an economy
Consumer price index (CPI)
an index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer.
increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand.
increases in the price level (inflation) resulting from an increase in resource costs (raw-material prices) and hence in per-unit production costs; inflation caused by reductions in aggregate supply.
per-unit production costs
the average production cost of a particular level of output; total input cost divided by units of output.
the number of dollars received by an individual or group for its resources during some period of time.
the amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.
increases in the price level (inflation) at a rate greater than expected.
increases in the price level (inflation) that occur at the expected rate.
cost-of-living adjustments (COLAs)
an automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.
real interest rate
the interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation.
nominal interest rate
the interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.
a decline in the economy's price level.
a very rapid rise in the price level; an extremely high rate of inflation.