chapter 17

Question 1

what is potential output

Answer 1

the maximum amount of goods and services an economy can produce when all resources, like labor and capital, are used at their most efficient levels over the long term. It’s like the “full capacity” of an economy when everything is working at its best.

Question 2

what is the business cycle

Answer 2

the natural ups and downs in the economy as it goes through periods of growth and contraction. It’s like the economy’s “heartbeat,” with alternating phases of expansion and recession.

Question 3

The business cycle causes the
BLANK to rise and fall sharply.

Answer 3

unemployment rate

Question 4

what is the output gap

Answer 4

the difference between the actual level of economic activity in a country and its potential level of production. It helps economists and policymakers understand whether the economy is operating at its full capacity, below its potential, or beyond its sustainable level.

Question 5

how to find the percentage of potential output.

Answer 5

Actual output - Potential output divided by Potential output x 100

Question 6

what is a negative output gap

Answer 6

occurs when the actual economic output of a country is lower than its potential or what it could produce under normal, healthy conditions. called a bust

Question 7

what is a positive output gap

Answer 7

when the actual level of economic output, or Gross Domestic Product (GDP), is higher than the economy’s potential or “normal” level of output. It signifies that the economy is operating above its long-term capacity. called a boom

Question 8

what is a peak

Answer 8

a high point in economic activity.

Question 9

what is a trough

Answer 9

a low point in economic activity.

Question 10

what is a recession

Answer 10

a period of declining economic activity.

Question 11

what is a expansion

Answer 11

a period of increasing economic activity.

Question 12

Recessions are BLANK

Answer 12

short and sharp

Question 13

Expansions are BLANK

Answer 13

long and gradual

Question 14

what is Unusual expansion

Answer 14

a period when an economy is growing at a faster or larger-than-expected rate. It means that economic activities like production, employment, and spending are increasing more rapidly than what is considered normal or typical.

Question 15

what is Comovement

Answer 15

the tendency of two or more things to move together or in the same direction. If one part of the economy is
doing well, then the other parts of the economy are probably also doing well.

Question 16

what are leading indicators

Answer 16

signals or signs that give us an idea of what might happen in the future in terms of economic trends. They provide early insights into the direction of the economy before more concrete data becomes available.

Question 17

what are lagging indicators

Answer 17

economic indicators that follow or lag behind changes in the overall economy. They provide information about past economic trends and are typically used to confirm or verify the direction of the economy after it has already started moving in a particular direction.

Question 18

what is Okun’s rule of thumb

Answer 18

For every percentage point that actual
output is less than potential output, the
unemployment rate will be around half a
percentage point higher.

Question 19

what does Seasonally adjusted mean

Answer 19

the data has been modified to remove the predictable, recurring effects of the seasons. This adjustment allows for a clearer understanding of the underlying trends and patterns in the data, making it easier to identify real changes or developments.

Question 20

what are annualized rates

Answer 20

data converted to the rate that would occur if the same rate had occurred throughout the year.
➢ Data from a time period of less than a
year converted into an annual rate.

Question 21

what are the Top Ten Economic Indicators

Answer 21

1. Real GDP
2. Real GDI
3. Nonfarm payroll
4. Unemployment rate
5. Initial unemployment claims
6. Business confidence
7. Consumer confidence
8. Inflation
9. Employment cost index
   10.The stock market

Question 22

why is GDP an indicator of economics

Answer 22

A key indicator of an economy’s health and performance. It serves as a comprehensive measure of the total economic output of a country over a specific period.

Question 23

why is GDI an indicator of economics

Answer 23

An economic indicator that measures the total income earned by all the individuals, businesses, and the government within a country’s borders during a specific period. In simpler terms, GDI represents the total amount of money generated by everyone in a country.

Question 24

why are nonfarm payrolls an indicator of economics

Answer 24

They tell us how many jobs were added or lost in the economy, excluding jobs in the agricultural sector. The term “nonfarm” is used because it excludes employment in farming, which can be highly seasonal and can distort the overall employment picture.

Question 25

why is the unemployment rate an indicator of economics

Answer 25

It tells us how many people, out of the total number who could be working, don’t have a job and are actively looking for one.

Question 26

why are the initial unemployment claims an indicator of economics

Answer 26

a signal that tells us how many people have recently lost their jobs and are applying for unemployment benefits. This number is important because it gives us a quick snapshot of what’s happening in the job market.

Question 27

why is business confidence an indicator of economics

Answer 27

when businesses feel confident, they are more likely to invest, hire more people, and expand. On the other hand, if businesses are not confident, they may cut back on spending, hiring, and growth plans.

Question 28

why is consumer confidence an indicator of economics

Answer 28

reflects how optimistic or pessimistic people feel about the overall state of the economy. When consumers are confident, it usually means they feel good about their financial situations and the general economic conditions.

Question 29

why is the inflation rate an indicator of economics

Answer 29

it reflects the changes in the cost of living and has widespread effects on various aspects of economic activity, influencing consumer behavior, investment decisions, and monetary policy.

Question 30

why is the employment cost index an indicator of economics

Answer 30

it is a valuable economic indicator because it sheds light on the evolving costs of labor for businesses, offering clues about potential inflationary pressures, the overall health of the job market, and the strategies that businesses might adopt in response to changing labor costs.

Question 31

why is the stock market an indicator of economics

Answer 31

it reflects the collective confidence and expectations of investors about the future of businesses and the overall economic environment.