Unit 8.4 Flashcards
Business cycle definition
it consists of short term fluctuation in the growth of real output, which are alternating periods of expansion (increasing real output) and contraction (decreasing real output)
What is an expansion in business cycle and what happens
Positive growth in real gdp (potential output)
Demand for goods and services: stronger demand for goods and services
Cyclical unemployment: new workers are hired, thus decreases unemployment rate.
Wages: the labor market tighten again causes wages to rise due to high demand
Confidence: it returns due to higher wages
What is an peak in business cycle and what happens
Represents the cycle’s maximum real GDP (potential output) and marks the end of the expansion.
Demand for goods and services:
Is at a temporary maximum
Cyclical unemployment:
overfull employment
Wages:
Difficulty in filling job vacancies causes wages to rise to their peak
Confidence:
Confidence is booming, consumers tend to restructure their budgets at this point
Inflation:
Overfull employment thus accelerates demand inflation to it peak
Natural unemployment will be higher then unemployment
What is an contraction in business cycle and what happens
Demand for goods and services:
Shortfall of demand for goods and services
Cyclical unemployment:
Laying off existing workers, or hiring fewer new workers
Wages:
Businesses might offer lower wage increases
Confidence:
loss of confidence
Inflation:
The inflation rate turns downward (disinflation or even deflation happens)
What is an trough in business cycle and what happens
The real GDP is at a temporary minimum, after this point, GDP will start rising
Demand for goods and services:
is at a temporary minimum
Cyclical unemployment:
unemployment at highest rate
Wages:
There is further decline until the prices of factors contract to reach their lowest point
Confidence:
Confidence continues to erode sometime instilling panic in an economy
Inflation:
The inflation rate remains at its lowest (disinflation or even deflation happens)
Natural unemployment will be lower then unemployment
What’s the area called above potential output and below short term fluctuations of real gdp called
Inflationary gap or overfull employment
What’s the area called below potential output and below short term fluctuations of real gdp called
Deflationary gap or unemployment
What’s the intersection of potential output and short term fluctuation s of real gdp called
Full employment
What happens when consumer confidence is high
Consumers spend more
Demand is strong
There are lots of jobs
Investment grows
People borrow more
What happens when consumer confidence is low
Consumers spend less
Demand is weak
Weak job market
Investment shrinks
People borrow less
Cyclical unemployment definition
A lack of employment as a result of changes to an economy’s business cycle.
Cyclical employment is caused by job losses during downturns or contractions in an economy
Natural unemployment
The minimum unemployment rate resulting from real or voluntary economic forces.
Natural unemployment reflects workers moving from job to job, the number of unemployed replaced by technology, or those lacking the skills to gain employment.
