Test # Chapters 9, 10, 12 Flashcards
Business Cycles
Alternating rises and declines in the level of economic activity, sometimes over several years.
Phases of Business Cycles
- Peak: Business activity at a temporary maximum, at or near full employment, real output at capacity, prices likely to rise.
- Recession: Decline in total output, income, and employment.
- Trough: The bottom of the recession or depression. Output and employment at lowest levels, can be short lived or long lasting.
- Expansion: A recovery period in which real GDP, income, and employment rise. May cause spending to increase, which can cause prices to rise, meaning inflation.
Shocks that Cause Business Cycles
- Irregular innovation: Sparks investments, consumption, output, and employment until economy mostly absorbs use of innovation.
- Productivity changes: Unexpected increases/decreases caused by resource availability or changes in rate of technological advances, etc.
- Monetary factors: When central bank shocks economy by printing more money than expected creates inflationary boom in output. Printing less money than expected causes output decline and price fall
- Political Events: Unexpected political events like peace treaties, new wars, or terrorist attacks.
- Financial instability: Rapid asset price increases or abrupt asset price decreases can cause expanding or contracting of lending, and boosting or eroding of consumer/business confidence.
Consumer Durables
Automobiles, personal computers, refrigerators, etc.
Most affected most by the business cycle.
Capital Goods and Consumer Durables
During a recession, industries that produce capital goods and consumer durables normally suffer greater output and employment declines than do service and nondurable consumer goods industries.
US population split into 3 groups
- Under 16 years old and those institutionalized
- Not in work force group: full time students, stay at home parents, retirees
- Labor force: People who are able and willing to work.
Unemployment Rate
The percentage of the labor force employed:
Unemployment rate = (unemployed)/(labor force)
Part Time Employment
Listed by BLS as fully employed, even though some part time workers wanted full time work, but could not get it.
Discouraged Workers
One must be actively searching for work to be part of the labor force. Many people are discouraged after looking for work for a long time and stop looking. Those discouraged workers are not counted in the unemployment rate calculation.
Three Types of Unemployment
Frictional, Structural, Cyclical
Frictional Unemployment
Workers who are either searching for jobs or waiting to take jobs in the near future. “Frictional” implies the labor market does not function perfectly and instantaneously.
Is in part desirable: Moving from low pay, low productive jobs to higher pay and higher productivity. Means greater income for workers, better allocation of labor resources, and larger real GDP
Structural Unemployment
Composition of the jobs available are changing. The demand for certain skills are either increasing or decreasing, meaning the pool of workers don’t have matching skills, so people have to retrain if their skills are obsolete. Structurally unemployed workers often need to retrain, gain more education, or relocate.
Cyclical Unemployment
Unemployment caused by a decrease in total spending. Results from insufficient demand for goods and services.
Full employment
Economy is fully employed when it experiences only structural or frictional unemployment. Experiences NO cyclical unemployment.
Full employment does NOT mean zero unemployment.
GDP Gap
Difference between actual GDP and potential GDP
Unequal burdens
Unemployment is unequally distributed among different groups: Occupation Age Race and ethnicity Gender Education Duration
