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25 Cards in this Set

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business cycles
the business cycle means alternating periods of prosperity and recession even if the long term trends show economic growth
peak
is the maximum level of real output at the star of the cycle
recession
which is a period of decline
trough
when real output is no longer declining
expansion
or recovery in which the economy experiences an increase in real output
unemployment
one of the twin problems arising from the economic instability of the business cycle
unemployment rate
is calculated by dividing the number of person in teh labor force who are unemployed by the total number of persons in the labor force
discouraged workers
who have left the labor force are not counted as unemployed
frictional unemployment
is due to the changes in technology and in the types of goods and services consumers wish to buy
cyclical unemployment
arises from a decline in total spending in the economy that pushes an economy into an economic downturn or recession
full employment unemployment rat or the natural rat of unemployment
is the sum of frictional and structural unemployment and is achieved when cyclical unemployment is zero
potential output
the real output of the economy is = to potential output
GDP gap
difference between actual and potential GDP
Okuns law
predicts that for every 1% that actual unemployment rate exceeds the natural rate of unemployment there is a negative GDP gap of about 2%
consumer price index
the primary measure of inflation in the US
inflation
is an increase in the general level of prices in the economy .
the rule of 70
can be used to calculate the number of years it will take for the price level to double at any given rate of inflation
70/ rate of inflation
demand pull inflation
is the result of excess total spending in the economy
cost push inflation
is the result of factors that raise per unit production cost . or the average cost is found by dividing the total cost of the resource inputs by the amount of output produced
real income
is determined by dividing nominal income by the price level expressed in hundredths
unanticipated inflation
hurts fixed income receivers savers and creditors because it lowers the real valu of their assets
cost of living adjustment
in their pay when the cpi RIses
anticipated inflation
people can adjust their nominal income to reflect the expected rise in the price level
interest rate
an inflation premium the expected rat of inflation is added to the real interest rate
deflation
decline in the price level