Chapter 8: Business Cycles

Question 1

the business cycle

Answer 1

the short-term fluctuations experienced in the economy due to changes in levels of economic activity

Question 2

expansion

Answer 2

a phase of the business cycle characterized by increasing real GDP, income, and employment

Question 3

peak

Answer 3

a point in the business cycle where real GDP reaches its max; marks the end of an expansion

Question 4

recession

Answer 4

decline in real output for at least two consecutive quarters

Question 5

depression

Answer 5

a long-lasting and severe recession

Question 6

trough

Answer 6

lower point of economic activity in the business cycle, where real GDP reaches its minimum; end of a recession

Question 7

labor force

Answer 7

individuals age 16+ who are are employed or actively seeking employment not institutionalized

Question 8

employed

Answer 8

of people in the economy who hold an FT or PT position

Question 9

unemployed

Answer 9

of people in the economy who have not had a job for at least a week but have actively been looking in the past 4 weeks

Question 10

Labor force participation rate (LFPR)

Answer 10

labor force / # 16 years and older x 100

Question 11

frictional unemployment

Answer 11

unemployment resulting from workers searching and waiting for jobs

Question 12

structural unemployment

Answer 12

unemployment occurring when the skills that some workers have to offer don’t match the skills needed by firms in the economy

Question 13

cyclical unemployment

Answer 13

unemployment resulting from fluctuations in the business cycle; when the natural rate of unemployment is lower than the actual rate of employment

Question 14

seasonal unemployment

Answer 14

a type of frictional unemployment resulting from workers searching and waiting for jobs due to seasonal fluctuations in demand for certain types of workers

Question 15

discouraged worker

Answer 15

someone who wants to work but is not actively searching for a job

Question 16

unemployment rate

Answer 16

unemployed / labor force x 100; a good indicator of the overall health of the economy

Question 17

full employment

Answer 17

an economy experience when it is operating at the natural rate of unemployment

Question 18

natural rate of unemployment

Answer 18

natural rate of unemployment = frictionally unemployed + structurally unemployed / labor force x 100

Question 19

inflation

Answer 19

general increase in the price of goods and services; measures how prices change from one period to the next

Question 20

consumer price index (CPI)

Answer 20

economic indicator used to measure over time the average price of a market basket of goods and services purchased by the typical consumer

CPI = value of a market basket / value of same market basket in base year x 100

NOTE: CALCULATED MONTHLY; CPI IS 100 IN IT’S BASE YEAR

Question 21

8 CPI categories

Answer 21

1) food & beverages 2) housing 3) apparel 4) transportation 5) medical care 6) recreation 7) education and communication 8) other goods and services

Question 22

inflation rate

Answer 22

% change in overall price of goods and services in an economy

Question 23

hyperinflation

Answer 23

a situation in which the inflation rate is positive and greater than 50% per month

Question 24

disinflation

Answer 24

a situation in which the inflation rate is positive but declining over time

Question 25

deflation

Answer 25

a situation in which the inflation rate is negative

Question 26

Producer Price Index (PPI)

Answer 26

price index that measures the average change over time in the selling prices received by producers of goods and services

Question 27

nominal income

Answer 27

of dollars received in exchange for the different resources available in the economy

Question 28

real income

Answer 28

amount of goods and services that can be purchased with nominal income; the inflation-adjusted measure of income

real income = nominal income / CPI x 100