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34 Cards in this Set
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Unemployment rate consistent with full employment |
Natural Rate of Unemployment |
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Flexible income receivers and debtors |
Groups unaffected, helped by inflation |
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Actual GDP - Potential GDP |
GDP gap |
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Nominal Income / Price Index |
Real Income |
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Caused by an excess of total spending beyond the economy's capacity to produce |
Demand-pull Inflation |
When resources are fully employed, the business sector can't respond to excess demand by expanding output |
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High rates in economic growth |
"Boom" economy |
economic expansion |
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Little or no economic growth |
Economic "Bust" |
Recession; negative growth |
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Cycle of "Boom" & "Bust"; periodic fluctuations in the level of economic activity over time |
The Business Cycle |
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Phases of Business Cycle |
Peak, recession, trough, expansion |
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Rising GDP, rising output, rising employment |
Peak or "Boom" |
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Falling GDP, falling output, falling employment, falling real income |
Recession or "Bust" |
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Growth rate of less than 3% |
Subnormal growth |
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Causes for Business Cycle |
Changes in spending (investment) and exogenous influences |
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Weather, wars, oil shocks and sub-prime mortgage crisis are considered: |
Exogenous Influences |
influences leading to cause for the Business Cycle |
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Types of unemployment |
Frictional, structural and cyclical |
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# of unemployed / labor force *100 |
Unemployment Rate |
Equation |
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Voluntary unemployment; workers between jobs; consists of search unemployment & wait unemployment |
Frictional Unemployment |
Short term; workers move voluntarily from one job to another |
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Involuntary unemployment; worker lacks skills or training that employers seek |
Structural Unemployment |
Unemployment that can be long term; workers lack skills |
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Unemployment due to a decline in total spending; workers have skills/training but economy not generating enough spending to employ these workers |
Cyclical Unemployment |
Behind in recession ("bust") phase of the business cycle |
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Occurs when there is no cyclical unemployment; real GDP occurs; economy producing it's potential output |
Full Employment |
natural rate of unemployment (NRU) |
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Unemployment above the natural rate means society operating at some point inside it's PPC; can be negative or positive |
GDP gap |
Actual GDP - Potential GDP |
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Actual GDP less than potential GDP |
Negative GDP gap |
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Actual GDP greater than potential GDP |
Positive GDP gap |
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Every 1% point actual unemployment rate exceeds natural rate, negative GDP gap of 2% occurs |
Okun's Law |
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Unequal Burdens |
Occupation, age, gender, race, education and duration |
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Rise in price level; money income will rise and real income will fall |
Inflation |
reduces purchasing power of money |
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Measure of inflation |
Consumer Price Index (CPI) |
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Change in price index / previous price index |
Inflation Rate |
P.I. yr 1= 100 and P.I. yr 2= 150 (150-100) / 100 = .50 or 50% |
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Types of Inflation |
Demand-pull and Cost-push |
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Too much money chasing too few goods; amount of goods outstrips the ability of economy to produce more |
Demand-pull Inflation |
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Rising prices due to rising costs; major source is supply shocks (increase in costs of raw materials or energy) |
Cost-push Inflation |
generates a recession |
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# of dollars; income evaluated in unadjusted dollars |
Nominal Income |
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Measure of amount of goods nominal income can buy; income adjusted for price changes |
Real Income |
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Nominal Income / Price Index *100 |
Real Income (equation) |
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