Unit 13: Economic Fluctuations & Unemployment

Question 1

Reverse Casuality

Answer 1

A two-way casual relationship in which A affects B and B also affects A

Question 2

Gross Domestic Product (GDP)

Answer 2

A measure of the market value of the output of the economy in a given period

Question 3

Recession

Answer 3

A period when output is declining. It is over once the economy begins to grow again.

Can also be when level of output is below normal level, even when the economy is growing

Question 4

Business Cycle

Answer 4

Alternating periods of faster and slower growth rate

Economy goes from boom to recession back to boom

Question 5

Okun’s Law

Answer 5

There exists a systematic relationship between unemployment and output

Question 6

Aggregate Output

Answer 6

Total output in an economy across all sectors and regions

Question 7

National Accounts

Answer 7

System used for measuring overall output and expenditure in a country

Question 8

Value Added

Answer 8

For a production process this is the value of output minus the value of all inputs.

Value added is equal profits before taxes plus wages

Question 9

Imports

Answer 9

Goods and services produced in other countries and purchased by domestic households, firms, and the government

Question 10

Exports

Answer 10

Goods and services produced in a particular country and sold to households, firms, and governments in other countries

Question 11

Consumption

Answer 11

Expenditure on consumer goods including short-lived and long-lived goods

Question 12

Investment

Answer 12

Expenditure on newly produced capital goods and buildings

Question 13

Inventory

Answer 13

Goods held by a firm prior to sale or use, including raw materials , and partially-finished or finished goods intended for sale

Question 14

Government Spending

Answer 14

Expenditure by the government to purchase goods and services

Does not include spending on transfers when used as a component of aggregate demand

Question 15

Government Transfers

Answer 15

Spending by the government in the form of payments to households or individuals

Ex. Unemployment benefits and pensions

Question 16

Trade Balance

Answer 16

Value of exports minus the value of imports

Question 17

Trade Deficit

Answer 17

A country’s negative trade balance (imports more than it exports)

Question 18

Trade Surplus

Answer 18

A country’s positive trade balance (exports more than it imports)

Question 19

Aggregate Demand

Answer 19

Total of the components of spending in the economy. Total amount of demand for the goods and services produced in the economy

Question 20

Shock

Answer 20

An exogenous change in the economy, or an unexpected event

Question 21

Self-Insurance

Answer 21

Saving by a household in order to maintain its consumption when there is a temporary fall in income or need for a greater expenditure

Question 22

Co-Insurance

Answer 22

A means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure

Question 23

Weakness of Will

Answer 23

Characteristic of human behavior that leads people to be unable to carry out plans or commit to beneficial future events

Ex. Dieting or foregoing some other present pleasure

Question 24

Capacity Utilization Rate

Answer 24

A measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow

Question 25

Inflation

Answer 25

An increase in the general price level in the economy, measured over a year

Question 26

Deflation

Answer 26

A decrease in the general price level

Question 27

Consumer Price Index (CPI)

Answer 27

A measure of the general level of price that consumers have to pay for goods and services

Question 28

GDP Deflator

Answer 28

A measure of the level of prices for domestically produced output