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17 Cards in this Set
- Front
- Back
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How is economic growth measured?
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An increase in real GDP occurring over some time period.
An increase in real GDP per capita occurring over some time period. |
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What is the main cause of the uneven distribution of economic growth seen around the world?
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The different starting dates for modern economic growth in various parts of the world are the main cause of the vast differences in per capita GDP seen today.
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Name four institutional structures that promote and sustain modern economic growth.
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Strong property rights
Patents and copyrights Literacy and widespread education Efficient financial institutions |
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Explain what the business cycle means.
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Alternating rises and declines in the level of economic activity, sometimes over several years.
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Describe the four phases of the business cycle:
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Peak – when business activity has reached a temporary maximum; economy is near or at full employment.
Recession – a period of decline in total output, income and employment. Trough – the point in a recession or depression when output and unemployment “bottom out” at their lowest levels. |
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Explain why business cycles affect capital and consumer durable goods industries more than non-durable goods industries.
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Business cycles affect capital and consumer durable goods industries because firms and individual consumers may choose not to purchase nonessential goods such as automobiles, personal computers and refrigerators, whereas they must continue to spend on needed medical or legal services.
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What phase of the business cycle is the current U.S. economy in?
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The U.S. is currently in the recession phase of the business cycle.
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Explain three types of unemployment
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Frictional – unemployed people who are either searching for jobs or waiting to take jobs in the near future.
Structural – Changes over time in consumer demand and in technology alter the structure of the total demand for labor, both occupationally and geographically. Structurally unemployed workers have marketable skills and either live in areas where jobs exist or are able to move to areas where they do. |
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What is the full employment or natural rate of employment?
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The economy is at full employment when the unemployment rate is at NRU, or natural rate of unemployment. At NRU, the economy is producing its potential output.
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Does full employment mean zero unemployment?
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No, because even during full employment there are frictionally unemployed people looking for jobs which they can fill. It also takes time for structurally unemployed people to achieve skills and geographic relocation needed for reemployment.
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Describe how unemployment is measured by the Bureau of Labor Statistics (BLS):
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Unemployment rate = (unemployed / labor force) * 100
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Identify economic costs of unemployment:
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Forgone output or GDP gap – the difference between actual and potential GDP.
Okun’s law – for every 1 percent point by which the actual unemployment rate exceeds the natural rate, negative GDP gap of about 2 percent occurs. Unequal burdens – cost is not equally distributed among workers. Lower skilled workers have higher unemployment rates than workers in higher skilled occupations. Age is also a factor, because teenagers have much higher unemployment rates than adults. |
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Identify the groups that bear unusually heavy unemployment burdens.
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African Americans and Hispanics
Less-educated workers |
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Explain two types of inflation:
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Demand-pull- when excess demand bids up the prices of limited output. The cause is invariably an overissuance of money by the central bank. Usually increases in price level are casued by an excess of total spending beyond the economy’s capacity to produce.
Cost-push- Inflation because of the supply, or cost side, of the economy due to rising per-unit production costs. |
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What are three measures of inflation?
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Changes in the consumer price index
Changes in GDP price index |
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Describe those who benefit and lose from unanticipated inflation.
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Savers – the purchasing power of accumulated savings deteriorates because paper assets decline in value.
Creditors – when the price level rises, creditors receive less real income because borrowers pay back less valuable dollars than those received from the lender. Flexible-Income Receivers – people whose incomes adjust to meet price level, such as union workers whose pay is supplemented to account for positive changes in the CPI, or social security beneficiaries. Demand-pull inflation may cause some nominal incomes to rise. Debtors (borrowers) – because the borrower pays back the principal and interest with dollars whose purchasing power has been eroded by inflation. |
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Frictional
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unemployed people who are either searching for jobs or waiting to take jobs in the near future.
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