Chapter 8: Business Cycles Flashcards
the business cycle
the short-term fluctuations experienced in the economy due to changes in levels of economic activity
expansion
a phase of the business cycle characterized by increasing real GDP, income, and employment
peak
a point in the business cycle where real GDP reaches its max; marks the end of an expansion
recession
decline in real output for at least two consecutive quarters
depression
a long-lasting and severe recession
trough
lower point of economic activity in the business cycle, where real GDP reaches its minimum; end of a recession
labor force
individuals age 16+ who are are employed or actively seeking employment not institutionalized
employed
of people in the economy who hold an FT or PT position
unemployed
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
Labor force participation rate (LFPR)
labor force / # 16 years and older x 100
frictional unemployment
unemployment resulting from workers searching and waiting for jobs
structural unemployment
unemployment occurring when the skills that some workers have to offer don’t match the skills needed by firms in the economy
cyclical unemployment
unemployment resulting from fluctuations in the business cycle; when the natural rate of unemployment is lower than the actual rate of employment
seasonal unemployment
a type of frictional unemployment resulting from workers searching and waiting for jobs due to seasonal fluctuations in demand for certain types of workers
discouraged worker
someone who wants to work but is not actively searching for a job
unemployment rate
unemployed / labor force x 100; a good indicator of the overall health of the economy
full employment
an economy experience when it is operating at the natural rate of unemployment
natural rate of unemployment
natural rate of unemployment = frictionally unemployed + structurally unemployed / labor force x 100
inflation
general increase in the price of goods and services; measures how prices change from one period to the next
consumer price index (CPI)
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
8 CPI categories
1) food & beverages 2) housing 3) apparel 4) transportation 5) medical care 6) recreation 7) education and communication 8) other goods and services
inflation rate
% change in overall price of goods and services in an economy
hyperinflation
a situation in which the inflation rate is positive and greater than 50% per month
disinflation
a situation in which the inflation rate is positive but declining over time
deflation
a situation in which the inflation rate is negative
Producer Price Index (PPI)
price index that measures the average change over time in the selling prices received by producers of goods and services
nominal income
of dollars received in exchange for the different resources available in the economy
real income
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
