Chapter 6

Question 1

what is a business cycle?

Answer 1

alternating periods of economic growth and contraction which can be measured by changes in real GDP.

Question 2

what is Peak?

Answer 2

the phase of the business cycle in which real GDP reaches its max after rising during a recovery

Question 3

what is a recession?

Answer 3

a downturn in the business cycle during which real GDP declines and the unemployment rate rises. also called a contraction

Question 4

what is a trough?

Answer 4

the phase of the business cycle in which real GDP reaches its minimum after falling during a recession

Question 5

what is recovery?

Answer 5

an upturn in the business cycle during which real GDP rises also called an expansion

Question 6

what is economic growth?

Answer 6

an expansion in national output measured by the annual percentage increase in a nations real GDP?

Question 7

T or F We do not value economic growth as one of our nation’s economic goals because it increases our standard of living - it creates a bigger “economic pie”

Answer 7

False

Question 8

what are leading indicators?

Answer 8

variables that changes before real GDP changes

Question 9

what are coincident indicators?

Answer 9

variables that change at the same time that real GDP changes

Question 10

what are lagging indicators?

Answer 10

variables that change after real GDP changes

Question 11

what is the equation for GDP?

Answer 11

GDP = C + I G + (X - M)

Question 12

what is an unemployment rate?

Answer 12

the percentage of people in the civilian labor force who are without jobs and are actively seeking jobs

Question 13

what is the civilian labor force?

Answer 13

the number of people 16 years of age and older who are employed or are actively seeking a job, excluding armed forces, homemakers, discouraged workers, and other persons not in the workforce

Question 14

what is the equation for calculating the unemployment rate?

Answer 14

Unemployment rate = (unemployed / civilian labor force)100

Question 15

what is a discouraged worker?

Answer 15

a person who wants to work, but who has given up searching for work because he or she believes there will be no job offers

Question 16

what is frictional unemployment?

Answer 16

unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, initially entering the labor force, reentering the labor force, or seasonally unemployed

Question 17

what is structural unemployment?

Answer 17

unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities

Question 18

what is cyclical unemployment?

Answer 18

unemployment caused by the lack of jobs during a recession

Question 19

what is full employment?

Answer 19

the situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates. Also called the natural rate of unemployment

Question 20

what is a GDP gap?

Answer 20

the difference between actual real GDP and potential or full-employment real GDP

Question 21

what is the equation for GDP gap?

Answer 21

GDP gap = actual real GDP - potential real GDP

Question 22

T or F the gap between actual and potential real GDP measures the monetary losses of real goods and services to the nation from operating at less than full employment

Answer 22

True