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business cycles.

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Recurring upswings and downswings in an economy's real GDP over time are called

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recession.

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The phase of the business cycle in which real GDP declines is called a

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trough.

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The phase of the business cycle in which real GDP is at a minimum is called the

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rising real output and falling unemployment rates.

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In the expansion phase of the business cycle the economy will most likely experience

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irregularly and unexpectedly.

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Innovations such as the microchip and the Internet lead to business cycle variations because significant innovations occur

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unemployed.

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The United States' economy is considered to be at full employment when about 4-5 percent of the labor force is

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frictionally unemployed.

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Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is

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unemployed.

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Official unemployment statistics understate unemployment because discouraged workers are not counted as

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unemployment.

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Part-time workers are counted as fully employed and therefore the official unemployment rate may understate the level of

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The unemployment rate

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the percentage of the labor force that is unemployed.

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Structural unemployment

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may involve a locational mismatch between unemployed workers and job openings.

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Bureau of Labor Statistics.

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The government agency responsible for collecting and reporting unemployment data is the

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actual GDP and potential GDP.

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The GDP gap measures the difference between

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money.

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During a period of hyperinflation people tend to hold goods rather than

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Inflation

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is undesirable because it arbitrarily redistributes real income and wealth.

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Inflation

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affects both the level and the distribution of income.

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level of income.

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The most important determinant of consumer spending is the

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level of income.

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The most important determinant of consumption and saving is the

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level of disposable income.

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The consumption schedule directly relates consumption to the

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A decline

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in disposable income decreases consumption by moving downward along a specific consumption schedule.

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1.

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APC + APS =

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increase.

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As disposable income increases, consumption and saving both

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Dissaving

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means that households are spending more than their current incomes.

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Dissaving

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occurs where consumption exceeds income.

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the wealth effect.

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In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as

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investment demand schedule.

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The relationship between the real interest rate and investment is shown by the

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loan.

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The real interest rate is the percentage increase in purchasing power that the lender receives on a

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highly variable, capital goods are durable, and innovation occurs at an irregular pace.

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Investment spending in the United States tends to be unstable because expected profits are

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larger amount.

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The multiplier effect means that an increase in investment can cause GDP to change by a

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spending.

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The multiplier is useful in determining the change in GDP resulting from a change in

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GDP.

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The practical significance of the multiplier is that it magnifies initial changes in spending into larger changes in

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investment, net exports, and government spending.

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The multiplier applies to

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Council of Economic Advisers.

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The group of three economists appointed by the President to provide fiscal policy recommendations is the

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Congress to stabilize the economy.

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Discretionary fiscal policy refers to intentional changes in taxes and government expenditures made by

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domestic output, employment, and the price level.

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Fiscal policy refers to the manipulation of government spending and taxes to stabilize

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stabilization at the option of Congress.

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Discretionary fiscal policy is so named because it involves specific changes in T and G undertaken expressly for

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real GDP.

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Expansionary fiscal policy is so named because it is designed to expand

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price stability.

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Contractionary fiscal policy is so named because it is aimed at reducing aggregate demand and thus achieving

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inflation.

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An economist who favors smaller government would recommend tax cuts during recession and reductions in government spending during

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