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Bruce - Business Cycle and Aggregate Supply & Demand
Terms in this set (30)
•Define business cycle.
The ups & downs in economic activity
What are the characteristics of expansion?
Increased GDP, lower unemployment rate, increased inflation
Why does unemployment fall during expansion?
Unemployment will fall because businesses are increasing production, so they need more workers.
What type(s) of unemployment exist even when the economy is at full employment? Explain.
Frictional unemployment & Structural unemployment
________ exists, because there will always be people who quit their job, are waiting for the job that best suits them, or who are fired from their job for poor performance
________ will exist because there will always be people whose jobs have been automated OR whose products are no longer produced because of changes in consumers' tastes.
What causes inflation during expansion?
Demand-pull inflation; people have jobs and more money. They are willing to pay higher prices for goods/services. This pulls prices up.
What happens to the unemployment rate during expansion? Explain.
It falls, because production (GDP) increases. Companies hire more workers to increase production, so the UR falls.
What level of inflation occurs during expansion? Explain.
Creeping inflation. Price rise slowly at a rate of 1-3% per year.
How do we define economic growth in the U.S.?
Increase in real GDP at a rate of 3% or higher each year
What's another name for the "peak"? Define it.
"Boom" - the last quarter of a period of expansion
What are the similarities between contraction & recession?
A recession is a contraction. Both are defined as a decrease in GDP.
What are the differences?
A contraction is only known as a recession if it persists for SIX MONTHS (2 quarters of the year) or longer. If GDP decreases for only 3 months (1 quarter), that is just a contraction. If GDP decreases for six consecutive months, then, by definition, the economy is in a recession.
What are the characteristics of a contraction?
GDP decreases, unemployment increases, prices/the inflation rate can increase, decrease, or stay the same depending on other economic factors
Why does unemployment rise during a contraction?
Unemployment will rise because businesses are decreasing production, so they don't need as many workers.
What type of unemployment will rise during a contraction?
It is cyclical unemployment.
Why might prices increase during a contraction?
If the cost of productive resources rises
Why might prices fall during a contraction?
If sellers lower prices to entice reluctant buyers
What LEVEL of inflation exists during contractions?
What cause of inflation explains higher prices during contractions?
The last quarter (3 months) of a contraction/recession
Why is "expansion" also known as "recovery"?
Because as the economy grows, it is "recovering" the bad experiences of the recession.
ups and downs in economic activity
annual increase in real GDP at a rate of 3% or higher
The GDP In EXPANSION goes
The UR In EXPANSION goes
The Inflation Rate In EXPANSION goes
Cause of Inflation in Expansion results in
The GDP In CONTRACTION goes
The UR In CONTRACTION goes
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