Chapter 14 Flashcards
business cycles
largely systematic ups and downs of real GDP
business fluctuations
the rise and fall of real GDP over time in a nonsystematic manner
recession
a period during which GDP declines for two quarters in a row
peak
the point where real GDP stops going up
trough
the turnaround point where real GDP stops going down
expansion
a period of recovery from a recession
trend line
growth path the economy would follow if it weren’t interrupted by alternating periods of recession and recovery
depression
a state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants
Causes of the Business Cycle (5)
- capital expenditures
- inventory adjustments
- innovation and imitation
- monetary factors
- external shocks
econometric model
macroeconomic model that used algebraic equations to describe how the economy behaves
GDP = C + I + G + (X - M)
GDP = C + I + G + (F - S)
index of leading indicators
a monthly statistical series that usually turns down before real GDP turns down
unemployment rate
the number of unemployed individuals divided by the total number of people on the civilian labor force
Limitations of the Unemployment Rate (2)
- it doesn’t count those who have become too frustrated or discouraged to look for work
- people are considered employed even when they hold part time jobs
Frictional Unemployment
unemployment caused by workers who are between jobs for one reason or another
Structural Unemployment
unemployment that occurs when a fundamental change in the operations of the economy reduces the demand for workers and their skills
