Economic Concepts and Analysis

Question 1

What is the “real business cycle” model?

Answer 1

it is based on the premise that fluctuations in output and employment result from real supply shocks that periodically hit the economy, and that markets adjust rapidly to the shock and always remain in equilibrium.

Question 2

What is the political business cycle model?

Answer 2

it explains the business cycle as resulting from interactions between economic policy decisions and political decisions designed to influence voter behavior.

Question 3

What is the insufficient aggregate expenditure model?

Answer 3

It is based on the premise that a business cycle is caused by inadequate spending.

Question 4

What are the 4 key components of aggregate expenditures in the insufficient aggregate expenditure model?

Answer 4

Personal consumption, business investment, government expenditures and the net difference between exports and imports.

Question 5

What is the accelerator model?

Answer 5

It assumes that the business cycle is caused by the volatility of investment spending.

Question 6

What does the unemployment rate measure?

Answer 6

The percentage of the labor force that is not working. It is calculated as the # of unemployed workers divided by the number of workers in the labor force X 100

Question 7

Define labor force.

Answer 7

All US residents 16 years and older who are not institutionalized, who are working or who are unemployed and looking for work. It included PT workers

Question 8

Define Discouraged workers.

Answer 8

Unemployed workers who are not actively seeking employment and they are not considered to be part of the labor force. They are also defined as workers who are able and willing to work but have not made specific efforts to find work during the past 4 weeks.

Question 9

Name the 4 types of unemployment.

Answer 9

1. frictional
2. seasonal
3. cyclical
4. structural

Question 10

Define frictional unemployment.

Answer 10

It occurs due to normal labor turnover.

Question 11

Who is included in Search employment?

Answer 11

workers looking for jobs

Question 12

Who is included in “wait employment”?

Answer 12

workers waiting to take jobs in the near future

Question 13

Define Seasonal unemployment.

Answer 13

It occurs in regular and recurring patterns in some industries.

Question 14

Define cyclical unemployment.

Answer 14

It is unemployment that is related to the general level of economic activity and tends to rise during the recession phase of the business cycle.

Question 15

Define structural unemployment.

Answer 15

It arises when changes in technology and international competitiveness change the skills required to perform jobs and/or change the location of jobs.

Question 16

Define Full Employment.

Answer 16

It is the level of employment where the actual unemployment rate is equal to the natural rate of unemployment. At this point, the economy would be producing its “potential output” with the economy operating at full capacity.

Question 17

When does the natural rate of unemployment occur?

Answer 17

When the number of job seekers is equal o the number of job vacancies and actual unemployment would be greater that zero due to frictional unemployment