Chapter 9: Business Cycles, Unemployment, and Inflation – Flashcards
Unlock all answers in this set
Unlock answersquestion
business cycles
answer
recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases
question
peak
answer
the point in a business cycle at which business activity has reached a temporary maximum; the point at which an expansion ends and a recession begins; at the peak, the economy is near or at full employment and the level of real output is at or very close to the economy's capacity
question
recession
answer
a period of declining real GDP, accompanied by lower real income and higher unemployment
question
trough
answer
the point in a business cycle at which business activity has reached a temporary minimum; the point at which a recession ends and an expansion (recovery) begins; at the trough, the economy experiences substantial unemployment and real GDP is less than potential output
question
expansion
answer
the phase of the business cycle in which real GDP, income, and employment rise
question
labor force
answer
persons 16 years of age or older who are not in institutions and who are employed or are unemployed and seeking work
question
unemployment rate
answer
the percentage of the labor force unemployed at any time
question
discouraged workers
answer
employees who have left the labor force because they have not been able to find employment
question
frictional unemployment
answer
a type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
question
structural unemployment
answer
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
question
cyclical unemployment
answer
a type of unemployment caused by insufficient total spending (insufficient aggregate demand) and which typically begins in the recession phase of the business cycle
question
full-employment rate of unemployment
answer
the unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 5 and 6 percent in the US because some frictional and structural unemployment are unavoidable
question
natural rate of unemployment (NRU)
answer
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
question
potential output
answer
the real output (GDP) an economy can produce when it fully employs its available resources
question
GDP gap
answer
actual GDP - potential output; may be either a positive amount (a positive GDP gap) or a negative amount (a negative GDP gap)
question
Okun's law
answer
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)
question
inflation
answer
a rise in the general level of prices in an economy; an increase in an economy's price level
question
Consumer Price Index (CPI)
answer
an index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer
question
deflation
answer
a decline in the general level of prices in an economy; a decline in an economy's price level
question
demand-pull inflation
answer
increases in the price level (inflation) resulting from increases in aggregate demand
question
cost-push inflation
answer
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
question
per-unit production costs
answer
the production cost divided by the number of units produced
question
core inflation
answer
the long run trend in the price level in which transitory prices are excluded
question
nominal income
answer
the number of dollars received by an individual or group for its resources during some period of time
question
real income
answer
the amount of goods and services a work can purchase with his or her nominal wage; the purchase power of the nominal wage
question
unanticipated inflation
answer
an increase of the price level (inflation) at a rate greater than expected
question
anticipated inflation
answer
an increase in the price level that is expected
question
cost-of-living adjustments (COLAs)
answer
an automatic increase in the incomes (wages) of workers when inflation occurs; often included in collective bargaining agreements between firms and unions
question
real interest rate
answer
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
question
nominal interest rate
answer
the interest rate expressed in terms of actual amounts currently charged for interest and not adjusted for inflation
question
hyperinflation
answer
a very rapid rise in the price level; an extremely high rate of inflation
