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Chapter 9 - Macroeconomics

Terms in this set (31)

business cycles
recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases
peak
the point in a business cycle at which business activity has reached a temporary maximum; the economy if near or at full employment and the level of real output is at or very close to the economy's capacity
recession
a period of declining real GDP, accompanied by lower real income and higher unemployment
trough
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
expansion
a phase of the business cycle in which real GDP, income, and employment rise.
labor force
persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work
unemployment rate
the percentage of the labor force unemployed at any time
discouraged workers
employees who have left the labor force because they have not been able to find employment
frictional unemployment
a type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
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
cyclical unemployment
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 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
potential output
the real output (GDP) an economy can produce when it fully employs its available resources
GDP gap
actual GDP minus potential output; may be either a positive amount (a positive GDP gap) or a negative amount (negative GDP gap)
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)
inflation
a rise in the general level of prices in an economy
deflation
a decline in the economy's price level
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
demand-pull inflation
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; too much spending chasing too few goods; demand is pulling the price level up.
cost-push inflation
increases in the price level (inflation) resulting from an increase in resource costs (for example, raw material prices) and hence in per unit production costs; inflation caused by reductions in aggregate supply; costs are pushing the price level up.
per-unit production costs
the average production cost of a particular level of output; total input cost divided by units of output
core inflation
the underlying increases in the price level after volatile food and energy prices are removed
nominal income
number of dollars received by an individual or group for its resources during some period of time
real income
the amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation
unanticipated inflation
increases in the price level (inflation) at a rate greater than expected
anticipated inflation
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
hyperinflation
a very rapid rise in the price level; an extremely high rate of inflation
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