Chapter 7 – Business Cycles, Unemployment, And Inflation Flashcards
Business cycle
Recurring increases and decreases in the level of economic activity over periods of years.
Economic theory
Deriving economic principles from relevant economic facts; an economic principle.
Peak
A phase in the business cycle during which the economy is at full employment and the level of real output is at or very close to the economies capacity.
Recession
A period of decline in total output, income, and employment.
Trough
The points during a recession or depression when output and employment reach their lowest levels.
Expansion
The phase of the business cycle during which output and employment rise toward full employment.
Productivity
A measure of the average output or real output per unit of input.
Labor force
People 15 years of age and older who are not in institutions and who are employed, or are unemployed and seeking work.
Unemployment rate
The percentage of the labor force that is unemployed at any time.
Discouraged workers
People who have left the labor force because they have not been able to find employment
Frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and my temporary layoff; unemployed workers between jobs.
Structural unemployment
Unemployment of workers who skills are not demanded by employers, who lack sufficient skills to obtain employment, or who cannot easily move to locations where jobs are available.
Cyclical unemployment
Unemployment caused by a decline in total spending or by insufficient aggregate demand.
Seasonal unemployment
Unemployment caused by seasonal factors.
Natural rate of unemployment or NRU
The unemployment rate that occurs when no cyclical unemployment exists and the economy is achieving its potential output.
Potential GDP
The real output an economy can produce when it fully employs it’s available resources
GDP gap
The amount by which actual GDP falls below potential GDP.
Correlation
A systematic undependable association between two sets of data; does not necessarily indicate causation.
Okun’s Law
The generalization that any one percentage point rise in an employment rate above the natural rate of unemployment will decrease GDP by 2% of economies potential GDP.
Inflation
A continual rise in the general level of prices in an economy.
Consumer price index or CPI
And index that measures the prices of a fixed market basket of goods and services that is brought by typical consumer.
Demand pull inflation
Increases in the price level caused by an excess of total spending beyond the economy’s capacity to produce.
Cost push inflation
Increases in the price level resulting from an increase in resource costs and hence in the per unit production cost.
Per unit production cost
The average production cost of a particular level of output; total input cost divided by units of output.
Core Inflation
The underlying increases in the consumer price index after volatile food and energy prices are removed
Nominal income
The number of current dollars received as wages, rent, interest, or profits.
Real income
The amount of goods and services nominal income can buy.
Unanticipated inflation
Increases in the price level that occur at a greater rate than expected
Anticipated inflation
Increases in the price level that occur at the expected rate.
Purchasing power
The amount of goods and services that a monetary unit of income can buy.
Cost-of-living adjustment or COLA
An automatic increase in the income workers when inflation occurs.
Labor union
A group of workers organized to advance the interests of the group to increase wages, shorten the hours worked, improve working conditions and so on.
Subsidy
A payment of funds by a government, firm, or household for which receives no good or service and return; when made by government, it is a government transfer payment.
Inflation premium
The component of the nominal interest rate that reflects anticipated inflation
Real interest-rate
The interest rate expressed in dollars a concert value or adjusted for inflation.
Nominal interest rate
The interest rate expressed in terms of annual amount currently charge for interest and not adjusted for inflation.
Deflation
A decline in the economy’s price level.
Nominal wage
The amount of money received by a worker per unit of time; money wage.
Hyperinflation
A very rapid rise in the general price level.
