Chapter 9 Terms Business Cycles Unemployment and Inflation

Flashcard maker : Lily Taylor
Business cycles
Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.
Peak
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.
Recession
A period of declining real GDP, accompanied by lower real income and higher unemployment.
Trough
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.
Expansion
A phase of the business cycle in which real GDP, income, and employment rise.
Labor force
Persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work.
Unemployment rate
The percentage of the labor force unemployed at any time.
Discouraged workers
Employees who have left the labor force because they have not been able to find employment.
Frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
Structural unemployment
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.
Cyclical unemployment
A type of unemployment caused by insufficient total spending (or by insufficient aggregate demand).
Full-employment rate of unemployment
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.
Natural rate of unemployment (NRU)
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.
Potential output
The real output (GDP) an economy can produce when it fully employs its available resources.
GDP gap
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).
Okun’s law
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).
Inflation
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.
Consumer Price Index (CPI)
An index that measures the prices of a fixed “market basket” of some 300 goods and services bought by a “typical” consumer.
Demand-pull inflation
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.
Cost-push inflation
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.
Per-unit production costs
The average production cost of a particular level of output; total input cost divided by units of output.
Nominal income
The number of dollars received by an individual or group for its resources during some period of time.
Real income
The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.
Unanticipated inflation
Increases in the price level (inflation) at a rate greater than expected.
Anticipated inflation
Increases in the price level (inflation) that occur at the expected rate.
Cost-of-living adjustments (COLAs)
An automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.
Real interest rate
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.
Nominal interest rate
The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.
Deflation
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.
Hyperinflation
A very rapid rise in the price level; an extremely high rate of inflation.
Core Inflation
Underlying increases in the price level after volatile food and energy prices are removed

Get instant access to
all materials

Become a Member