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Macroeconomics Chapter 9
Terms in this set (36)
What are business cycles?
recurring increases and decreases in the level of economic activity over periods of years
What are the four periods in a business cycle?
Peak, recession, trough, and expansion
What is the peak period in a business cycle?
the point in the business cycle at which business activity has reached a temporary maximum and the economy is near or at full employment and the level of real output is at or very close to the economy's capacity
What is the recession period of a business cycle?
A period of declining real GDP accompanied by lower real income and higher unemployment
What is the trough period in a business cycle?
the point in a business cycle at which business activity has reached a temporary minimum; the point at which as recession has ended and an expansion or recovery begins
What is the expansion period in a business cycle?
a phase in which real GDP, income, and employment rise
What are the three groups that the Bureau of Labor Statistics places people into?
Under 16 or institutionalized, not in labor force (school, etc), and those 16 and older who are employed or actively seeking work
How do you calculate the unemployment rate?
number of unemployed in the labor force divided by the number of individuals in the labor force
Who are discouraged workers?
employees who have left the labor force because they have not been able to find employment
What is frictional unemployment?
a type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between
What is structural unemployment?
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.
What is cyclical unemployment?
a type of unemployment caused by insufficient total spending or by insufficient aggregate demand
What is the full-employment rate of unemployment?
the unemployment rate at which there is no cyclical unemployment in the labor force; equal to between 4 and 5 percent in the US because some frictional and structural unemployment is unavoidable
What is the natural rate of unemployment?
the full-employment rate of unemployment; 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
What is potential output?
the real output (GDP) an economy can produce when it fully employs its available resources
What is the GDP gap?
actual gross domestic product minus potential output; may be positive or negative
What is Okun's law?
The generalization that any 1-percentage point rise in the unemployment rate above the full employment rate of unemployment is associated with a rise in the negative GDP gap by 2 percent of potential output (potential GDP)
What is inflation?
a rise in the general level of prices in an economy
What is deflation?
a decline in the economy's price level
What is the consumer price index?
an index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer
What is demand-full inflation?
when resources are fully employed, the business sector cannot immediately respond by increasing output
What is cost-push inflation?
increases in the price level resulting from an increase in resource costs and hence in per unit production costs; inflation caused by reductions in aggregate supply
What is the most common type of inflation?
What is considered long term unemployment?
unemployed greater than 15 weeks
What is the average unemployment rate for those with less than a high school education?
What are some unequal burdens of unemployment?
unemployment differs among occupations, age, and race/ethnicity
What are per-unit production costs?
the average production cost of a particular level of output; total input cost divided by units of output
What is core inflation?
the underlying increases in the price level after volatile food and energy prices are removed
What is the difference between real income and nominal income?
nominal income is the number of dollars received by an individual or group for its resources during a period of time, while real income is the amount of goods and services that can be bought with nominal income (adjusted for inflation)
What is unanticipated inflation?
increases in the price level at a rate greater than expected
What is anticipated inflation?
increases in the price level that occur at an expected rate
What are cost-of-living-adjustments?
an automatic increase in the incomes of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers
What is the difference between real and nominal interest rate?
real interest rate is the interest rate expressed in terms of annual amounts currently charged and adjusted for inflation while nominal interest rate is not adjusted for inflation
What is hyperinflation?
a very rapid rise in price level
Who is hurt by inflation?
fixed income recievers, savers in the economy, and creditors
Who is helped by inflation?
flexible income receivers, some business owners, and debtors
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