Chapter 8.4

Question 1

Business cycle

Answer 1

The short-term fluctuations in the growth of real output, which are alternating periods of expansion and contraction in an economy

Question 2

Recession

Answer 2

Contraction that lasts six or more months

Question 3

Long-term growth trend

Answer 3

The line that goes through the cyclical line and represents average growth over long periods of time

Question 4

Potential output

Answer 4

The output represented by the long-term growth trend

Question 5

Full employment

Answer 5

When unemployment is at the natural rate of unemployment

Question 6

When an economy’s actual GDP is greater than potential GDP, there is an __ __ and unemployment is __ than the natural rate

Answer 6

Output gap, less

Question 7

When an economy’s actual GDP is less than potential GDP, there is an __ __ and unemployment is __ than the natural rate

Answer 7

Output gap, greater

Question 8

What does the business cycle help understand about macroeconomic objectives?

Answer 8

Reduction in the intensity of expansions and contractions
Increasing the steepness of the line representing potential output