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17 Cards in this Set
- Front
- Back
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Define Recession:
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A period in which the economy is growing at a rate significantly below normal
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Define Depression
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A particularly severe or protracted recession
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Define Peak
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The beginning of a recession, the high point of economic activity prior to a downturn
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Define Trough
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The end of a recession, the low point of economic activity prior to a recovery
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Define Potential Real GDP
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The level of real GDP that requires enough labor so that economy is at full employment
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Define Output Gap
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Y*-Y
The difference between the economy's potential output and it's actual output at a point in time |
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Define Recessionary Gap
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Y<Y*
A positive output gap -capital and labor resources are not fully utilized -unemployment rate is above normal |
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Define Expansionary Gap
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Y>Y*
A negative output gap -Higher output and employment than normal -demand for goods exceeds the capacity to produce them and prices rise -unemployment rate is below normal |
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Define Natural rate of unemployment
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The sum of frictional and structural unemployment
U*=Uf+Us |
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During recessionary gaps...
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Y<Y*
U>U* |
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IF there is "full employment"
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Y=Y*
U=U* |
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If there is an inflationary gap (aka expansionary)
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Y> Y*
U*>U |
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Calculate Uc given: Current level of real GDP is 5% below the full employment real GDP, Y*
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Using Okun's you 5/2= 2.5%
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Calculate the value of percentage output gap given: the economy goes into a recession and U increases by 2 percentage points
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So, using Okun's you 2*2=4%
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Calculate the percentage output gap given: current real GDP, Y,is estimated to be $12,250 billion and potential real GDP, Y*, is estimated to be $ 12,350
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12,350-12,250/ 12,350 *100
= .81% |
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Calculate the % output gap given; the current unemployment rate is 5.3% and the natural unemployment rate is 5%
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5.3-5/5 = .6
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Output gaps happen in the short-run only. Why do they occur?
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Because prices don't adjust quickly enough.
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