Macro Economics Chapter 06 Power Point Flashcards
Chapter 6 will answer these questions:
•How are cycles measured?•What causes business cycles?•What is unemployment?
What is a business cycle?
•Alternating periods of economic growth and contraction, which can be measured by changes in real GDP
What are the four phases of a business cycle?
•Peak•Recession•Trough•Recovery
What is a peak?
•The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery
What is economic growth?
•An expansion in national output measured by the annual percentage increase in a nation’s real GDP
Why is growth an economic goal?
•It increases our standard of living - it creates a bigger “economic pie”
What is a trough?
•The phase of the business cycle in which real GDP reaches its minimum after falling during a recession
What is a recession?
•A downturn in the business cycle during which real GDP declines
How long before a downturn is a recession?
•As a general rule, at least two consecutive quarters in which GDP declines
When is a downturn considered a depression?
•The term depression is primarily an historical reference to the extremely deep and long recession of the early 1930’s
What is a recovery?
•An upturn in the business cycle during which real GDP rises
What are the three types of economic indicators?
•Leading•Coincident•Lagging
What is a leading indicator?
•Variables that change before real GDP changes. I.E.•Average workweek•Unemployment claims•New consumer goods orders•Delayed deliveries•New orders for plant and equipment•New building permits•Stock prices•Money supply•Interest rates•Consumer expectations
What is a coincident indicator?
•Variables that change at the same time that real GDP changes.I.E.•Nonagricultural payrolls•Personal income•Industrial production•Manufacturing and trade sales
What is a lagging indicator?
•Variables that change after real GDP changes.I.E.•Unemployment rate•Duration of unemployment•Labor cost per unit of output•Consumer price index for services•Commercial and industrial loans•Commercial credit to personal income ratio•Prime interest rate
What is the civilian labor force?
•People 16 years or older who are either employed or actively seeking a job, excluding members of the armed forces and people in institutions
Who is considered employed?
•Anyone who works at least one hour a week for pay or at least 15 hours per week as an unpaid worker in a family business
What causes unemployment?
•When total spending falls, businesses will find it profitable to produce a lower volume of goods and avoid unsold inventory
Who is considered unemployed?
•Anyone who is 16 years of age and above who is actively seeking employmentTotal Population age 16 and overNot in Labor Force:Armed forces, Household workers, Students, Retirees, Persons with disabilities, Institutionalized, Discourage workers,Civilian labor force:Employed Employees, Self-employed,Unemployed New entrants, Re-entrants, Lost last job, Quit last job, Laid off.
What is the unemployment rate?
•The percentage of people in the labor force who are without jobs and are actively seeking jobs.Unemployment rate= unemployed / civilian labor force X 100
How is the unemployment rate calculated?
•60,000 households are surveyed each month
Who is a discouraged worker?
•A person who wants to work, but who has given up searching for work
What is underemployment?
•People working at jobs below their level of skills
What are criticisms of the unemployment rate?
•Does not include discouraged workers•Includes part-time workers•Not measure underemployment
What are the types of unemployment?
•Frictional•Structural•Cyclical
What is frictional unemployment?
•Normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force
What is structural unemployment?
•A mismatch of the skills of workers out of work and the skills required for existing job opportunities
What is cyclical unemployment?
•Unemployment caused by the lack of jobs during a recession
What is full employment?
•Unemployment equals the sum of frictional and structural unemployment
What is considered full employment?
•The natural rate of unemployment changes over time, but today it is considered to be about 5%
What is the GDP gap?
•The difference between full-employment real GDP and actual real GDP
What is the cost of cyclical unemployment?
•The GDP gap
What is the Conclusion of GDP Gap?
•The gap between actual and potential real GDP measures the monetary losses of real goods and services when at less than full employment
