Chapter 9 Terms 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 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 has ended and an expansion (recovery) begins.
question
Expansion
answer
A phase of the business cycle in which real GDP, income, and employment rise.
question
Labor force
answer
Persons 16 years of age and 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 (or by insufficient aggregate demand).
question
Full-employment rate of 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 United States because some frictional and structural unemployment is unavoidable.
question
Natural rate of unemployment (NRU)
answer
The full-employment unemployment rate; 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 gross domestic product minus 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 unemployment rate is associated with a rise in the negative GDP gap by 2 percent of potential output (potential GDP).
question
Inflation
answer
Determining real gross domestic product by increasing the dollar value of the nominal gross domestic product produced in a year in which prices are lower than those in a base year.
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
Demand-pull inflation
answer
Increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase 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 average production cost of a particular level of output; total input cost divided by units of output.
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 that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.
question
Unanticipated inflation
answer
Increases in the price level (inflation) at a rate greater than expected.
question
Anticipated inflation
answer
Increases in the price level (inflation) that occur at the expected rate.
question
Cost-of-living adjustments (COLAs)
answer
An automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.
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 annual amounts currently charged for interest and not adjusted for inflation.
question
Deflation
answer
Finding the real gross domestic product by decreasing the dollar value of the GDP for a year in which prices were higher than in the base year.
question
Hyperinflation
answer
A very rapid rise in the price level; an extremely high rate of inflation.
question
Core Inflation
answer
Underlying increases in the price level after volatile food and energy prices are removed
