Economic Trends And US Labor Flashcards
1
Q
Economic Growth
A
- When an economy’s long-run potential output increases.
- Long-term growth measured by a shift in an economy’s Production Possibilities Curve and rightward shift in the Long Run Aggregate Supply Curve (LRAS)
- Higher standard of living/lower unemployment
- Short-term growth (12 months) measured by percentage change in GDP
2
Q
Types of Unemployment
A
- Frictional
- Structural
- Cyclical
- Seasonal
- Disguised
3
Q
Frictional Unemployment
A
- Due to temporary transitions in the employees’ lives (moving, graduating)
- Leading cause of unemployment
4
Q
Structural Unemployment
A
- Mismatch between the types of available employment and the workers’ demographics (their skills)
5
Q
Cyclical Unemployment
A
- Due to reduced demand for services and goods within the economy (thus, businesses offer less jobs)
6
Q
Disguised Unemployment
A
- Does not affect the aggregate economic output. Happens when there is low productivity and the existence of affluent workers who are willing to fill the few jobs.
7
Q
Consumer Confidence Index
A
- Survey of large portion of US tha summarizes the feelings of consumers about their current and future outlook.
- Released monthly by The Conference Board; consists of 5 questions.
- Present Situation Index (2 questions)
- Expectations Index (3 questions about their feelings towards the future)
Criticism: score is a “Lagging Indicator”: it tends to Follow events instead of predicting them. Also, it gave high Present score during Pandemic
8
Q
Using Consumer Confidence Index
A
- Index Value= score for all 5 questions. Compared to score from 1985, which had 100%
- Less Confident = any Index Value below 100
- More confident = any Index Value above 100.
- Present Index tends to be >140, and expectations index tends to be <100
9
Q
2 Ways to measure GDP
A
- Expenditure approach
- Income approach
Both should yield the same GDP result.
10
Q
Full Employment GDP (Potential Output)
A
- Describes a healthy economy producing at its potential.
- Represents an economy’s output when operating at the lowest sustainable rate of unemployment. (2-4%)
- Achieved when there is an equilibrium between Aggregate Demand and Short and Long term Aggregate supply.
- The only unemployment that occurs is frictional unemployment
- Inflation NOT accelerating
- Savings equals investment
11
Q
Aggregate Demand
A
- The total amount of money being spent by consumers, investment, the government, and foreign countries at a given price level.
- Essentially, what people are willing to spend at the current price of goods and services.
12
Q
Aggregate Supply
A
- The total output by firms at a given price level.
- In other words, the amount of goods and services that companies are willing to supply at the given price level.
- Measure in short-term (wages sticky, affecting cost of production)
- Also measured in long-term (wages more flexible)
13
Q
Economy at Full Employment GDP
A
The point on a graph at which the lines for all of the below intersect:
1. Aggregate Demand (AD)
2. Short-run Aggregate Supply (SRAS)
3. Long-run Aggregate Supply (LRAS)
14
Q
Difference between long-term Economic Growth and temporary increases.
A
- As Economic Growth occurs, LRAS moves to the right of the graph, and AD and SRAS adjust accordingly, creating even higher Full Employment GDP over time.
- In a short-term change, these values will be out of alignment and thus Full Employment GDP will not be met.
15
Q
Recessionary Gap
A
- Economy is producing UNDER its potential output (Full Employment GDP)
- AD line under the potential output point on the graph.
- Unemployment is high
- Deflation occurs because demand is low, and firms have to lower prices to encourage spending.
