Chapter 18 ? – Flashcards

The period of a business cycle after its lowest point and before its highest point.
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Occurs after the trough and before the peak. It is a period during which aggregate economic activity is increasing

The lowest point of a business cycle, as the economy comes out of a recession towards an expansion

The highest point of a business cycle. As the expansion slows down and the economy moves towards a recession
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Occurs at the end of the expansion or boom, and signals the onset of a contraction (also known as downturn or slowdown)

The period of a business cycle after the peak and before the trough; often called a recession or, if exceptionally severe, called a depression.
A period during which aggregate economic activity is declining

A period during which real GDP decreases (i.e., negative growth) for at least two successive quarters, or a period of significant decline in total output, income, employment, and sales usually lasting from six months to a year.

same as contraction:
The period of a business cycle after the peak and before the trough; often called a recession or, if exceptionally severe, called a depression.

An expansionary phase characterized by economic growth “testing the limits” of the economy.
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Generally occurs in the latter part of an expansion, when economic growth starts testing the limits of the economy

Usually presented in nominal terms so it is deflated to identify trends in the real sales growth

Has longer useful lives, households are more willing to defer purchases of durable in difficult economic times

Used to evaluate consumer confidence or sentiment and to gain insights into future spending patterns

Adjusts for temporary unsustainable sources of income and estimates the income that households can rely on

Named for French economist J.B. Say: All that is produced will be sold because supply creates its own demand.

Named for Hyman Minksy: A point in a business cycle when, after individuals become overextended in borrowing to finance speculative investments, people start realizing that something is likely to go wrong and a panic ensues leading to asset sell-offs.

An approach to macroeconomics that seeks the macroeconomic conclusions of individuals maximizing utility on the basis of rational expectations and companies maximizing profits.

A group of dynamic general equilibrium models that assume slow-to-adjust prices and wages.

A group of dynamic general equilibrium models that assume slow-to-adjust prices and wages.

The number of people with a job.

The portion of the working age population (over the age of 16) that is employed or is available for work but not working (unemployed).

People who are actively seeking employment but are currently without a job.

The ratio of unemployed to the labor force.

The ratio of the labor force to total population of working age. Also called participation ratio.

A person who has a job but has the qualifications to work a significantly higher-paying job.

A person who has stopped looking for a job or has given up seeking employment.

A person voluntarily outside the labor force, such as a jobless worker refusing an available vacancy.

The percentage increase in the general price level from one period to the next; a sustained rise in the overall level of prices in an economy.
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Defined as a persistent increase in the overall level of prices (aggregate price level) in an economy over a period of time

The percentage change in a price index—that is, the speed of overall price level movements.
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Measures the speed of overall price movements by calculating the rate of change in a price index

When a high inflation rate is combined with a high level of unemployment and a slowdown of the economy.

Negative inflation.
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A persissent decrease in the aggregate level of proces in an economy over a period of time

An extremely fast increase in aggregate price level, which corresponds to an extremely high inflation rate—for example, 500 to 1000 percent per year.

A decline in the inflation rate, such as from around 15 to 20 percent to 5 or 6 percent. Disinflation is very different from deflation because even after a period of disinflation, the inflation rate remains positive and the aggregate price level keeps rising (although at a slower speed).

Represents the average prices of a basket of goods and services.

A price index created by holding the composition of the consumption basket constant.

Changes in the relative prices of goods motivate consumers to replace expensive goods with cheaper substitutes

Improvements in product quality sometimes come at the cost of higher prices

Recently introduced products are not included in the price index if the consumption basket is fixed

The geometric mean of the Laspeyres index

An index formula using the current composition of a basket of products.

All domestic personal consumption; the basis for a price index for such consumption called the PCE price index.
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Uses business surveys to cover personal consumption

Reflects the price changes experienced by domestic producers in a country.
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Tracks price changes experienced by domestic producers and includes items such as fuels, farm products, machinery, and equipment

based on an index that includes all goods and services in the economy

based on an index that excludes food and energy prices from basket. Core inflation is a better predictor of domestic inflation

Reflects the price changes experienced by domestic producers in a country.

A bond issued by the United States Treasury Department that is designed to protect the investor from inflation by adjusting the principal of the bond for changes in inflation.

Type of inflation in which rising costs, usually wages, compel businesses to raise prices generally.

Type of inflation in which increasing demand raises prices generally, which then are reflected in a business’s costs as workers demand wage hikes to catch up with the rising cost of living.

beileve that inflation occurs when the growth rate of money supply in the economy outpaces growth in GDP

plays an important role in policy-making. Once economic agents start expecting prices to continue to rise going forward, they change their actions in line with those expectations

Effective unemployment rate, below which pressure emerges in labor markets.

Effective unemployment rate, below which pressure emerges in labor markets.
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(not at 0% unemployment) that the economy begins to experience bottlenecks in the labor market and feel wage-push inflationary pressures

(output per hour) important because it determines the number of units across which business can spread their labor costs

The average labor cost to produce one unit of output.

A variable that provides information on the state of the overall economy.

Turning points that usually precede those of the overall economy; they are believed to have value for predicting the economy’s future state, usually near-term.
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Turning points that usually precede the turning points of the broader economy. Economists use them to predict the economy’s future state

Turning points that are usually close to those of the overall economy; they are believed to have value for identifying the economy’s present state.
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Turning points that usually occur close to the turning points of the broader economy. Economists use them to identify the current state of the economy

Turning points that take place later than those of the overall economy; they are believed to have value in identifying the economy’s past condition.
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Having turning points that usually occur after the turning points of the broader economy. Economists use them to identify the economy’s past condition

A composite of economic variables used by analysts to predict future economic conditions.
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The composite of leading economic indicators

measures the proportion of the index’s components that have moved in the same direction as the overall index

even though its a small part of the economy, fluctuations in the sector occur so rapidly that it makes a significant contribution to overall economic movements

Contributions of the external sector to GDP varies considerably from country to country

the “invisible hand” will lead the market towards general equilibrium. Fluctuations in aggregate economies activity are short-lived as the economy will quickly readjust (e.g. via lower interest rates and lower wages if aggregate demand falls)

Shares some views with the neoclassical schools, but focuses more on money and government

The general price and wage reduction (required under the Austrian and neoclassical schools to bring the economy out of a recession) are hard to attain

Money supply is supremely important. The government should maintain a steady growth rate of money supply

Business cycles have real causes (e.g. changes in technology). monetary variables (such as inflation) are assumed to have no impact on GDP and unemployment

Like the New Classical School, this theory seeks to draw macroeconomic conclusions based on microeconomics (utility-maximizing) reasoning

Equals the ratio of the number of people who are unemployed to the total labor force