Macro Economics Chapter 06 Power Point

Question 2

Chapter 6 will answer these questions:

Answer 2

•How are cycles measured?•What causes business cycles?•What is unemployment?

Question 3

What is a business cycle?

Answer 3

•Alternating periods of economic growth and contraction, which can be measured by changes in real GDP

Question 4

What are the four phases of a business cycle?

Answer 4

•Peak•Recession•Trough•Recovery

Question 5

What is a peak?

Answer 5

•The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery

Question 6

What is economic growth?

Answer 6

•An expansion in national output measured by the annual percentage increase in a nation’s real GDP

Question 7

Why is growth an economic goal?

Answer 7

•It increases our standard of living - it creates a bigger “economic pie”

Question 8

What is a trough?

Answer 8

•The phase of the business cycle in which real GDP reaches its minimum after falling during a recession

Question 9

What is a recession?

Answer 9

•A downturn in the business cycle during which real GDP declines

Question 10

How long before a downturn is a recession?

Answer 10

•As a general rule, at least two consecutive quarters in which GDP declines

Question 11

When is a downturn considered a depression?

Answer 11

•The term depression is primarily an historical reference to the extremely deep and long recession of the early 1930’s

Question 12

What is a recovery?

Answer 12

•An upturn in the business cycle during which real GDP rises

Question 13

What are the three types of economic indicators?

Answer 13

•Leading•Coincident•Lagging

Question 14

What is a leading indicator?

Answer 14

•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

Question 15

What is a coincident indicator?

Answer 15

•Variables that change at the same time that real GDP changes.I.E.•Nonagricultural payrolls•Personal income•Industrial production•Manufacturing and trade sales

Question 16

What is a lagging indicator?

Answer 16

•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

Question 17

What is the civilian labor force?

Answer 17

•People 16 years or older who are either employed or actively seeking a job, excluding members of the armed forces and people in institutions

Question 18

Who is considered employed?

Answer 18

•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

Question 19

What causes unemployment?

Answer 19

•When total spending falls, businesses will find it profitable to produce a lower volume of goods and avoid unsold inventory

Question 20

Who is considered unemployed?

Answer 20

•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.

Question 21

What is the unemployment rate?

Answer 21

•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

Question 22

How is the unemployment rate calculated?

Answer 22

•60,000 households are surveyed each month

Question 23

Who is a discouraged worker?

Answer 23

•A person who wants to work, but who has given up searching for work

Question 24

What is underemployment?

Answer 24

•People working at jobs below their level of skills

Question 25

What are criticisms of the unemployment rate?

Answer 25

•Does not include discouraged workers•Includes part-time workers•Not measure underemployment

Question 26

What are the types of unemployment?

Answer 26

•Frictional•Structural•Cyclical

Question 27

What is frictional unemployment?

Answer 27

•Normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force

Question 28

What is structural unemployment?

Answer 28

•A mismatch of the skills of workers out of work and the skills required for existing job opportunities

Question 29

What is cyclical unemployment?

Answer 29

•Unemployment caused by the lack of jobs during a recession

Question 30

What is full employment?

Answer 30

•Unemployment equals the sum of frictional and structural unemployment

Question 31

What is considered full employment?

Answer 31

•The natural rate of unemployment changes over time, but today it is considered to be about 5%

Question 32

What is the GDP gap?

Answer 32

•The difference between full-employment real GDP and actual real GDP

Question 33

What is the cost of cyclical unemployment?

Answer 33

•The GDP gap

Question 34

What is the Conclusion of GDP Gap?

Answer 34

•The gap between actual and potential real GDP measures the monetary losses of real goods and services when at less than full employment