CH 6 Economic Growth, Business Cycles, and Unemployment Flashcards
-The study of problems that affect the economy as a whole
Macroeconomics
-Lack of economic growth
-Recessions
-Unemployment
-Inflation
What to do or not to do about them
-GDP
-Inflation
-Economic Growth
-Business Cycles
-Key Macroeconomic
(Free Exercise) Look up Production Possibility Frontier (PPF)
Production Possibility Frontier moment
-How do we measure growth?
Changes in total or potential output or GDP over time
___ ______ ____
GDP Growth rate
__________ ______ - The highest amount of output an economy can sustainably produce using existing production processes and resources.
-U.S. economic output has grown at an annual 2.5 to 3.5 percent since World War 1
Potential output
_________ _____
-Upward or downward movement of economic activity that occurs around the long-term growth trend or long-term growth in potential output
Business Cycle
(Free Exercise) Look at Business Cycle Phases
Business Cycle Phases Moment
Four Phases of the business cycle
Peak, downturn, trough, and upturn
The top of a business cycle
Peak
-Eventually the economy enters a _______ or ___________ and may enter a recession
Downturn, Contraction
A _________ is a decline in real output that persists for more than ___ consecutive quarters of a year.
-_________ - negative GDP Growth
Recession
The bottom of a recession or depression is called the ______.
Trough
As output begins to expand, the economy comes out of the trough; called an ______ or _________.
upturn, expansion.
A __________ is a deep and prolonged recession
depression
How to determine where we are in the cycle
Look at the economic indicators
*GDP Growth Rate
*Unemployment Rate
*Inflation Rate
*Housing starts - new construction
*Consumer Confidence
Following the crash of 2008 - the U.S. economy experienced __________ _________ - a period of protracted slow growth with not enough job creation.
Structural stagnation.
“Jobless recovery”
-Based on changes in the economy & changes in production.
Structural Stagnation
_________ _________ starts as cyclical downturn - when economy doesn’t return to long-term growth rate
-Starts as short term but becomes long term
-Unemployment is not due to temporary layoffs, as in a business cycle; but to longer-term changes in the structure of economy and labor market
Structural Stagnation
________ population
-16 years of age and older
civilian
______ force
-Employed & Unemployed
Labor
Not in _____ Force
-Neither Employed nor Unemployed
Labor
Unemployment Rate
Ratio of Unemployed to Labor Force
__________ -divided into labor force & not in the labor force
Population
Who’s not in the labor force?
Full-time students, military, retirees, under 16, stay at home parents, incarcerated, institutionalized
- those people in an economy who are willing and able to work.
-divided into employed & unemployed
labor force
= tells us what percentage of the population is in the labor force
= number in the labor force/population
Labor Force Participation Rate
What major changes have affected the Labor Force Participation Rate?
-Changes in demographics
-Labor laws - Family leave
-Immigration
-Pandemic
- must be willing & able to work alongside actively looking for work
Unemployed
The ___________ ____ is the percentage of people in the labor force who are willing & able to work but who cannot find jobs - must be actively looking for work
Unemployment Rate
of unemployed person/Labor force (includes employed & unemployed)
Unemployment Rate
If the total unemployed stands at 12 million and the labor force stands at 150 million, the unemployment rate is…
12 million/150 million = 0.08 x 100 = 8%
______ ____ of employment - the lowest sustainable rate of unemployment that policy makers believe is achievable given existing conditions
-Used to be around 5-6%
Target rate
- Unemployed worker who is no longer looking for work
Discouraged worker
Why might a unemployed worker transition into a discouraged worker?
-Due to long deep recession
-Due to outdated skills
Are discouraged workers counted in the unemployed rate?
No, they are no longer actively looking for work and not counted as part of the labor force
(Marginally Employed:) -Working part-time but seek full-time
involuntary part-timers
(Marginally Employed:) -Working a job that doesn’t utilize your skills
underemployed
U_ - Official unemployed rate - Must be willing and able to work AND actively looking for work
U3
U_ - U_ plus discouraged workers, part timers who want full-time work, and underemployed workers
U6, U3
Issues with official rate - U_
-Doesn’t count discouraged workers
-Counts part-time as employed even if want full-time
-Counts underemployed as employed even if not using skills
U3
__________ unemployment is that caused by institutional structure of an economy or by economic restructuring making some skills obsolete
Structural unemployment
___________ unemployment is unemployment caused by people entering the job market and people quitting a job just long enough to look for and find another job
Frictional unemployment
________ unemployment - caused by change in season
Seasonal Unemployment
________ Unemployment is that which results form fluctuations in economic activity
Cyclical unemployment
4 types of Unemployment
Structural, Frictional, Seasonal, Cyclical
_________ Economics: pre – Great Depression
Classical
_________ Economics: Great Depression – 70’s
Keynesian
____________ Economics: 70s – 2000s
Neoclassical
_________ economists believe that business cycles are temporary glitches
-Believe in laissez-faire or no government intervention
-Focus on long run
Classical
-Over time, economy grow – their concern
-Problem is too much government regulation
-Laissez faire, invisible hand
Classical Economics
-The economy wasn’t working and correcting itself
-John Maynard Keynes - British economist
-“In the long run, we’re all dead.”
Keynesian economics
-Solution is government policies to stimulate the economy
-_________ economist believe that business cycles reflect underlying problems that can be addressed with government policies
-Focus on short term situation
Keynesian
-_________ - Focus on ____-run so only concerned if there’s economic growth
Classical, long-run
-Incentives for supply
-How to increase supply or output
-Supply-side economics
-Compare to PPC out
Classical/Long-run
_________ - focus on _____-run business cycle minimizing recessions and inflation
Keynesian, Short-run
-Focus on demand
-How do we ensure enough demand for our goods?
-Demand-side economics
-Concerned with business cycles and recessions
Keynesian/Short-run business cycle
_________ economists argue that the government should just accept that business cycles occur and take a laissez-faire stance
Classical
__________ economists argue that government can influence these fluctuations with policy actions
Keynesians
