Ch 10 Short- Term Economic Fluctuations

Question 1

Business cycles

Answer 1

short-term fluctuations in GDP and other variables

Question 2

Recession (or Contraction)

Answer 2

a period in which the economy is growing at a rate significantly below normal

Question 3

Depression

Answer 3

a particularly sever or protracted recession

Question 4

Peak

Answer 4

the beginning of a recession; the high point of economic activity prior to a downturn

Question 5

Trough

Answer 5

the end of a recession; the low point of economic activity prior to a recovery

Question 6

Expansion

Answer 6

a period in which the economy is growing at a rate significantly above normal

Question 7

Boom

Answer 7

a particularly strong and protracted expansion

Question 8

Potential output, Y* (or Potential GDP or Full-employment output)

Answer 8

the maximum sustainable amount of output (real GDP) that an economy can produce

Question 9

Output gap

Answer 9

the difference between the economy’s actual output and its potential output, relative to potential output, at a point in time

Question 10

Recessionary gap

Answer 10

a negative output gap, which occurs when potential output exceeds actual output (Y

Question 11

Natural rate of unemployment, u*

Answer 11

the part of the total unemployment rate thetas attributable to frictional and structural unemployment, equivalently, the unemployment rate that prevails when cyclical unemployment is zero, so that the economy has neither a recessionary nor an expansionary output gap

Question 12

Okun’s law

Answer 12

each extra percentage point of cyclical unemployment is associated with about a 2 percentage point increase in the output gap measured in relation to potential output