The Buisness Cycle Flashcards
(29 cards)
Three basic measures of macro performance
Output GDP growth
Unemployment
Inflation
GDP
The total value of output (goods and services) produced in an economy during a given period of time
Measured by the Bureau of Economic Analysis, an agency within the Department of Commerce.
An economy’s potential output is reflected in its
Production Possibilities Curve
Production Possibilities
The alternative combination of goods and services that could be produced in a given time period with all available resources and technology
When there is GDP growth, the production possibilities curve shifts _______
Outwards
The Business Cycle
The altering periods of economic growth and contraction experienced by the economy
It shows the rise and fall of the economy over time
On a graph it is a straight line of economic growth with a squiggle going through it.
Business cycles are measured by?
Changes in REAL GDP
Real GDP
The inflation- adjusted value of GDP or the value of output measure in constrained prices
Nominal GDP
Measured in current prices
Recession
A decline in total output (real GDP) for two or more consecutive quarters
It is a slump or downturn in the economy
We rely on the National Bureau of Economic Research as our official designator of a recession
Who designates a recession?
The National Bureau of Economic Research
When output _______, jobs are eliminated.
Jobs
Unemployment is measured by the Bureau of Labor Statistics, agency of the department of labor
The labor force consists of
Everyone over 16 who is actually working
All those who are not working but actively seeking employment
The unemployment rate is the proportion of the labor force that is unemployed
What is the unemployment rate equation?
Unemployment rate = # of the unemployed
————————-
# in labor force
Seasonal unemployment
Caused by seasonal changes
Ex
Teens with summer jobs
Frictional unemployment
This is a brief period of unemployment associated with a job search
Examples
Recent graduates
Workers in between jobs
Structural Unemployment
Results from a mismatch between the skills of labor force and the skills needed by employers
Cyclical Unemployment
When there are not enough jobs to go around due to the downturns in the business cycle
This unemployment is DUE TO RECESSION
Example
The Great Depression
Macroeconomics
The study of aggregate economic behavior, of the economy as a whole
Explains the business cycle
Full employment
The lowest rate of unemployment compatible with price stability
Estimated to be between 4 and 6
Inflation
An increase in the average level of prices, not a change in any specific price
Deflation
A decrease in the average level of prices of goods and services
Relative price
Price of one good in comparison with the price of other goods
Problems with inflation
Uncertainty may cause people to change their consumption, savings or investment behavior
Fear of rapidly increasing prices may deter consumers from making long-term purchasing decisions
Firms may postpone construction or not finish a new construction.
