BUSINESS CYCLE Flashcards
1
Q
output gap (formula)
A
(actual output-potential output)/(potential output)×100
1
Q
Potential output
A
the level of output that occurs when all resources are fully employed
2
Q
negative output gap
A
can’t find jobs, equipment lies unused, high unemployment, negative demand-pull inflation
3
Q
positive output gap
A
low unemployment, people work more hours, wages rise, positive demand-pull inflation
4
Q
business cycle
A
peak
recession (short, sharp)
trough
expansion (long, gradual)
5
Q
leading indicators
A
- predict the future path of the economy
- business confidence, consumer confidence and the stock market
- they change first and then the economy changes
6
Q
lagging indicators
A
– follow business cycle movements with a bit of delay
- unemployment
7
Q
Okun’s rule of thumb
A
3% positive output gap - unemployment rate will fall by about 1%
