Chapter 26 Flashcards
(28 cards)
BUSINESS CYCLE
Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases
PEAK
activity has reach temporary maximum in the business cycle
RECESSION
period of declining real GDP, accompanied by lower real income and higher unemployment
TROUGH
activity has reached a temporary minimum in the business cycle
EXPANSION
a phase of the business cycle in which real GDP, income, and employment rise
UNEMPLOYMENT RATE
the percentage of the labor force unemployed at any time
Types of unemployment
- Frictional unemployment
- Structural Unemployment
- cyclical unemployment
FRICTIONAL UNEMPLOYMENT
type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
inevitable and in part desirable
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
Full employment
situation in which the unemployment rate is equal to the full employment rate of unemployment and where frictional and structural unemployment occur but not cyclical unemployment
FULL-EMPLOYMENT RATE OF UNEMPLOYMENT
unemployment rate at which there is no cyclical unemployment of the labor force
NATURAL RATE OF UNEMPLOYMENT
occurs when there is no cyclical unemployment and the economy is achieving its potential output
DISCOURAGED WORKERS
employees who have left the labor force because they have not been able to find employment
GDP GAP
actual gross domestic product minus potential output
Actual GDP – potential output
OKUN’S LAW
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
INFLATION
rise in general level of prices in an economy
DEFLATION
decline in the economy’s price level
Types of Inflation
- Demand-pull inflation
2. Cost-push inflation
DEMAND-PULL INFLATION
increases in the price level 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 resulting from an increase in resource cost and hence in per unit production costs
CORE INFLATION
underlying increases in the price level after volatile food and energy prices and removed
Who is hurt by inflation?
- fixed income
- savers
- creditors
Who is helped or unaffected by inflation?
- flexible income receivers
2. debtors