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45 Cards in this Set

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  • Back
Expansion: 1998-2000
Peak: 2000
Contraction: 2001-2002
Trough: 2002
Identify the business cycles between 1998 to 2006.
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?
Recession (Contractionary)
What is the "old school" definition of a recession?
A downturn in the business cycle during which real GDP declines
How does the NEBR (National Economic Bureau of Research) define a recession?
"A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and trade."
What is economic growth?
An expansion in national output measured by the annual percentage increase in a nation’s real GDP
What are the three types of economic indicators?
What is a leading indicator?
Variables that change before real GDP changes
What is a coincident indicator?
Variables that change at the same time that real GDP changes
What is alagging indicator?
Variables that change after real GDP changes
Who is considered unemployed?
Anyone who is 16 years of age and above who is actively seeking employment
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 is the unemployment rate?
The percentage of people in the labor force who are without jobs and are actively seeking jobs.

# of person unemployed divided by the total labor market.
Who is a discouraged worker?
A person who wants to work, but who has given up searching for work. He or she believes there will be no job offers
What are the 3 criticisms of the unemployment rate calcualtion?
Does not include discouraged workers
Includes part-time workers
Does not measure underemployment
What are the types of unemployment?
What is seasonal unemployment?
Unemployment caused by recurring changes in hiring due to changes in weather conditions
What is frictional unemployment?
Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, entering, or re-entering the labor force
What is structural unemployment?
Unemployment caused by 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?
The situation in which an economy operates at an unemployment rate equal to the sum of the seasonal, frictional, and structural unemployment rates
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 GDP gap is the difference between full-employment real GDP and actual real GDP
What is deflation?
A decrease in the general (average) price level of goods and services in the economy
What is inflation?
An increase in the general (average) price level of goods and services in the economy
What is the Consumer Price Index?
The CPI is an index that measures changes in the average prices of consumer goods and services
Who reports the CPI?
The Bureau of Labor Statistics (BLS) of the Department of Labor
Which goods and services are included in the CPI?
The BLS records average prices for a “market basket” of different items purchased by the typical urban family
What is disinflation?
A reduction in the rate of inflation
What are some criticisms of the CPI?
It can overstate or understate the impact of inflation for certain groups
Does not measure quality
Substitutes are ignored
What is real income?
The actual number of dollars received (nominal income) adjusted for changes in the CPI
What is wealth?
The value of the stock of assets owned at some point in time
How is wealth affected by inflation?
Inflation can benefit holders of wealth because the value of their assets tends to increase as prices rise
What will cause your real income to decline?
The rate of inflation is greater than your rate of income
How does unanticipated inflation affect borrowers?
They beneifit positively because they are paying back their loans in "cheaper" dollars.
How does unanticipated inflation affect lenders?
They negatively affected because they are being paid back in "cheaper" dollars.
How does unanticipated inflation affect persons on a fixed income?
Their "real" income diminishes and thus their purchasing power.
What is the real interest rate?
The nominal rate of interest minus the inflation rate
What is hyperinflation?
An extremely rapid rise in the general price level
What are the two basic types of inflation?
What is demand-pull inflation?
A rise in the general price level resulting from an excess of total spending (demand)
When does demand-pull inflation occur?
When the economy is operating at or near full employment
What is cost-push inflation?
A rise in the general price level resulting from an increase in the cost of production
What can cause cost-push inflation?
Cost increases for labor, raw materials, construction, equipment, borrowing etc.
What is a wage-price spiral?
A situation that occurs when increases in nominal wage rates are passed on in higher prices, which, in turn, result in even higher nominal wages and prices