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36 Cards in this Set

  • Front
  • Back

the business cycle

alternating increases and decreases in economic activity over time

phases of the business cycle

-peak


-recession


-trough


-expansion

peak

is the highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall.

recession

a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

trough

a low turning point or a local minimum of a business cycle. The time evolution of many variables of economics exhibit a wave like behavior with local maxima (peaks) followed by local minima (troughs). ... The period of the business cycle in which real GDP is increasing is called the expansion.

expansion

hen the economy moves from a trough to a peak. It is a period when the level of business activity surges and gross domestic product (GDP) expands until it reaches a peak. A period of expansion is also known as an economic recovery.

business cycle fluctuations

-economic shocks


-prices are sticky


-economic response entails decrease in output and employment





economic shocks examples

-nine 11


-supply shock; is extreme price raise


-can be negative or positive

prices are "sticky" downwards example

it cost money to change prices

causes of shock

-irregular innovation


-productivity changes


-monetary factors


-political events


- financial instability



irregular innovation

.....

monetary factors

....

capital goods

typically for business; trucks, equipment


consumer goods

microwaves, washer, dryer

what are two durable goods most affected by the business cylce

capital and consumer goods

non durable consumer goods that are affected less

services and food and clothing



criticisms of unemployment

-involuntary part-time workers counted as full time


-Discouraged workers are not counted as unemployed





Frictional unemployment

individuals searching for jobs or waiting to take jobs soon

structural unemployment

occurs due to changes in the structure of the demand for labor



cyclical unemployment

caused by the recession phase of the business cycle

natural rate of unemployment

is a combination of frictional, structural and surplusunemployment. Even a healthy economy will have this level ofunemployment because workers are always coming and going, looking for better jobs.

can natural unemployment vary over time?

yes

why can natural unemployment over time?

-demographic changes


-changing job search methods


-public policy changes



can actual unemployment go above or below the natural rate of unemployment?

yes its better to be lower

GDP gap equation

GDP gap= actual GDP - potential GDP

can a GDP gap be negative or positive ?

yes

Okun's Law

every 1% of cyclical unemployment creates a 2% GDP gap

GDP gap

is an indicator of the difference between the actual output of an economy and the maximum potential output of the economy, expressed as a percentage of gross domestic product (GDP).

unequal burdens

-occupation


- age


-race and ethnicity


-gender


-education


-duration

loss of skills and loss of self-respect is a economic ...?

costs

plummeting morale is a economic ...?



costs

family disintegration is a economic ...?



costs

poverty and reduced hopeis a economic ...?



costs

heightened racial and ethnic tensionsis a economic ...?

costs

suicideis a economic ...?

costs



can lead to violent social and political changeis a economic ...?

costs