Econ Ch. 13 Test Flashcards
List the phases of the business cycle
Trough, Expansion, Peak, Recession
Characteristics of a Trough
Bottom of business cycle, low prices, high unemployment, depressed incomes
Characteristics of an Expansion
Rising GDP, More jobs, low unemployment, national income expands, more credit purchases
Characteristics of a Peak
Price of labor is up, borrowing money begins to cost more (higher interest rates), economy expands, sales increase, halt in rapid expansion due to limited raw materials, labor, and capital, shortages of natural resources, low unemployment
Characteristics of a Recession
Unemployment rises, Big ticket items purchased less, businesses produce less
Periodic upswings and downturns of business activity in a market economy
Business cycle
What is the sunspot theory
Theory that business cycle is related to sunspots on the sun (a change in weather –> change in agricultural market)
What is the psychological theory?
Theory that the business cycle is related to the level of confidence people have in the economy
What is the monetary theory?
Theory that change sin money supply cause ups and downs of business cycle
What is the technological theory?
Theory that new development in technology causes changes in business cycle
What is the political theory?
Theory that the political party in power influences the business cycle (liberals overspend –> inflation, conservatives underspend –> recession)
5 theories of what affects the business cycle
Political theory, technological theory, monetary theory, psychological theory, sunspot theory
Nation’s with long lasting periods of unemployment more likely to have…
Spousal/Child abuse, suicides, heart attacks, divorces, homicides, psychological problems
What 2 phases of business cycle is unemployment most common?
Recession and Trough
What is/is not included in unemployment figures
IS included: 16-64 year olds, not military, not institutionalized,
IS NOT: people under 16, over 64, people in military or institutionalized
Why is knowing the unemployment rate helpful?
It indicates what part of the business cycle the country is in
What can skew unemployment figures?
- Workers not counted as employed (homemakers, military)
- Discouraged workers
- They count underemployed and employed as the same thing
- Temporarily off jobs counted as unemployed (people between jobs)
4 Types of unemployment
1) Frictional: People between jobs
2) Structural: Workers skills dont match available jobs
3) Seasonal: Labor force needed expands/contracts seasonally
4) Cyclical: Caused by downside of business cycle
How has government tried to react to unemployment
- Employment Act of 1946 made it the government’s priority to maximize employment
- job training programs
- encourage work to be spread out, not so much seasonal
- control business cycle
- implement financial penalties
What is the free market solution to unemployment?
Allow supply and demand to work and regulate the market (jobs/wages)
ESSAY question STudy own notes Link monetary and political theory
The monetary theory is the theory that changes in the money supply cause the ups and downs of the business cycle. The political theory is the belief that the political party in charge controls the business cycle. Money supply can cause expansion and recession in business cycle. The people associated with changing the money supply are the leaders of the FED and FOMC. These are appointed by the president and approved by Congress. Political leaders can somewhat control the business cycle because they choose the people who shrink and grow the money supply.
Percentage of labor force that is not employed but looking for work
Unemployment rate
Includes employed and unemployed actively looking for job
Labor Force
Chronically unemployed people
Discouraged Workers
