Chapter 6: BUSINESS CYCLE, UNEMPLOYMENT, ; INFLATION – Flashcards

Unlock all answers in this set

Unlock answers
question
Business Cycle
answer
irregular but recurrent increases and decreases in the level of aggregate economic activity during a relatively short period of time
question
Phases of Business Cycle
answer
1. expansion 2. peak 3. contraction (recession if lasts more than 2 consecutive quarters) 4. trough
question
Turning Points for Business Cycle
answer
peak + trough only knowable after fact
question
Causes of Business Cycles
answer
1. Supply Shocks: output shocks (i.e. innovation, unexpected increase in output) 2. Demand Shocks: unanticipated change in demand for output (i.e. political events, war)
question
Business Cycle: Cyclical Impact on Product Demand
answer
durable vs. non-durable 1. durable good: manufacturing has greater fluctuation in product demand than non-durable goods (postponable) 2. non-durable good: most likely necessities (i.e. food)
question
2 Problems that arise from Business Cycles
answer
1. unemployment 2. inflation
question
Measuring Unemployment
answer
Through Bureau of Labor Students (BLS)
question
Unemployment: BLS
answer
2 monthly surveys: 1. household survey 2. establishment survey 1. household survey: individuals 2. establishment survey: over 16, non-institutionalized, employed, unemployed, labor force but will NOT survey self-employed
question
Unemployment: Labor Force
answer
includes employed and unemployed
question
Unemployment Rate
answer
Urate: # of unemployed ÷ labor force
question
Types of Unemployment
answer
1. Frictional Unemployment 2. Structural Unemployment 3. Cyclical Unemployment
question
Frictional Unemployment
answer
temporary unemployment as people are temporarily between jobs. Unemployed have job skills that are in demand by employees
question
Structural Unemployment
answer
chronic unemployment where unemployed do not have job skills that are in demand for employed (mismatch)
question
Cyclical Unemployment
answer
unemployment caused during the recessionary phase of business cycle by insufficient aggregate demand to employ all who want to work
question
Full Employment Unemployment
answer
-the unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 and 5 percent in the U.S. because some frictional and structural unemployment is unavoidable. -unemployment rate when the economy is "fully employed' is the sum of frictional and structural unemployment and is achieved when cyclical unemployment is zero (real output of economy is equal to its potential output)
question
Costs of Unemployment
answer
1. Economic Cost -GDP Gap: actual GDP minus potential GDP -Okun's Law: for every 1% increase in unemployment, the GDP gap will increase by 2% -full employment: 5% -Unemployment not equally distributed among various groups 2. Psychological Cost
question
Inflation
answer
persistent increase in the general level of prices
question
Measure of Inflation
answer
1. Consumer Price Index (CPI) 2. Rate of Inflation 3. Producer Price Index (PPI) 4. GDP Price Deflator 5. Personal Consumption 6. "Core" Price Inflation
question
Measure of Inflation: Consumer Price Index
answer
an increase that compares the price of a market basket of consumer goods & services in one period to price of same (or highly similar) market basket in the base period -most common measure to measure inflation
question
Measure of Inflation: Rate of Inflation
answer
rate of growth at general price level (look at equation in notebook)
question
Measure of Inflation: Producer Price Index
answer
prices of producer purchased inputs -formerly the wholesale price index
question
Measure of Inflation: GDP Price Deflator
answer
includes price of all goods and services in GDP
question
Measure of Inflation: Personal Consumption
answer
-component from GDP price deflator that does not take into account government or foreign purchases but only consumer purchases
question
Measure of Inflation: Core Price Inflation
answer
inflation minus the effects of certain volatile components, especially energy and foods
question
Types of Inflation
answer
1. Demand Pole Inflation 2. Cost Push Inflation
question
Types of Inflation: Demand Pole Inflation
answer
caused by excessive spending "too much money chasing too few goods"
question
Types of Inflation: Cost Push Inflation
answer
caused by sharp increase in cost of key resources
question
Effects of Inflation
answer
redistributive effects: redistributes real income among members of an economy -real income: nominal income ÷ price index -% change in income=change in nominal income, % price level
question
annuity
answer
reverse of insurance
question
Types of Inflation
answer
1. Anticipated Inflation 2. Unanticipated Inflation
question
People who get hurt from Unanticipated Inflation
answer
1. fixed income recipients (nominal) 2. savers --real interest rate: % change in purchasing power that borrower pays the lender 3. lenders aka creditors
question
People who DON'T get hurt from inflation
answer
1. those whose nominal income is adjusted by cost of living adjustments (COLAs) 2. borrowers
question
Does Inflation Affect Output?
answer
1. Cost-Push Inflation & Real Output: decreases it 2. Demand-Pull Inflation & Real Output: Questionable in terms of change in real output. Modest (2-4%) inflation better than deflation
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New