Chapter 25 macro

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A business cycle
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Are alternating rises and declines in the level of economic activity, sometimes over several years.
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Peak
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The phase of the business cycle at which the economy is a full employment is known as
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Recessions
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Output and employment are falling
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A recession
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An expansion usually follows ____in a business cycle
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Price stickiness
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Is a major factor preventing the economy from rapidly adjusting to shocks
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Adjust slowly
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When negative shocks occur, changes in output and employment occur in the short- run and prices:
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Consequences of unexpected lower total spending in the short-run when prices are sticky
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Unemployment rises, firms sell fewer units of outputs, GDP declines
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A key issue in macroeconomics is why the economy sees:
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Business cycle fluctuations rather than slow, smooth growth
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Expansion
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-output rises -the price level may rise
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Expansion
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In a trough of a ____output and employment “bottom out” at their lowest levels.
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Output; Employment
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It is widely accepted that the immediate cause of large cyclical changes in levels of ____ and _____ is the level of unexpected total spending.
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Macroeconomic
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Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of
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Economic shocks
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Unexpected events that drive economic cycles and fluctuations are called
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Shocks
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Economic theories are founded on the idea that economic fluctuations are driven by:
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The labor force is
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The sum of the employed and unemployed
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Firms sell fewer units of output
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Consequence of unexpected lower total spending in the short-run when prices are sticky
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Business cycle
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Irregular innovation, monetary factors, unexpected changes in the levels of Total spending, political events, financial instability and productivity changes are all sources
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Macroeconomics
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The economy sees business cycle fluctuations rather slow, smooth growth is a central issue
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illustrates the difficulty of distinguishing between fictional, structural, and cyclical unemployment
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A person quit his job in search of a better one but the former job is in a declining industry and disappears completely.
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Unemployment is an economic problem because
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A unit of labor resource that could be engaged and production is sitting idol.
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The consequence of a negative GDP gap is that
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What is not produced is lost forever and future economic growth will be less
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The non-economic effects of unemployment include
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A sense of failure created and parents and and their children
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Comparing the value of the “market basket” of goods that consumers typically purchase to the value of the basket in a base year
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Consumer Price index (CPI)
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Inflation
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Reduces the purchasing power of the dollar
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The normal interest rate
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Minus the inflation rate is the real interest rate
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Deflation means
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Means prices are Falling
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Inflation means
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Overall prices are Rising
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Cost-push inflation
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A negative GDP gap
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Demand-pull inflation
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A positive GDP gap

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