business cycles
Fluctuations in the general level of economic activity
expansion
characterized by growing GDP and declining unemployment
depression
A prolonged and severe recession
peak
the height of the expansion phase
contraction
characterized by falling GDP and rising unemployment
trough
The lowest point of the contraction phase
recession
A decline in real GDP for two or more consecutive quarters
employed
Person is employed if he or she has worked full or part-time (even a few hours) in the past week or is on vacation or sick leave from a regular job
unemployed
A person who is not currently employed, but is
actively seeking employment (in last 4 weeks) or
waiting to start or return to a job
-those who do not have a job and are NOT seeking employment are NOT considered ________
Civilian Labor Force
Number of people age 16 or older who are employed or unemployed.
Labor Force Participation Rate
Percent of population age 16 and over who is in the civilian labor force
Unemployment Rate
percentage of people in the labor force who are unemployed
Employment to Population Ratio
Percent of population age 16 and over who are employed
Frictional Unemployment (Uf):
Unemployment resulting from changes in the economy and imperfect information that prevents workers from being immediately matched up with existing job openings.
Structural Unemployment (Us):
Unemployment due to structural characteristics of the economy that prevent the matching of available jobs with available workers.
Cyclical Unemployment (Uc):
Unemployment due to recessions and inadequate labor demand.
-High during recessions
-Negative during expansions
Natural Unemployment (U*)
is the combination of Structural Unemployment and Frictional Unemployment and is not fixed but affected by the structure of the labor force and public policy.
Actual Unemployment (U)
is the sum all three types of unemployment
2. Recession:
U* < U (actual unemployment is greater than natural rate of unemployment)
U* = U (actual unemployment is equal to natural rate of unemployment)
Full Employment
Expansion:
U* > U (natural unemployment is greater than actual rate of unemployment)
Potential Output (Yf)
The level of output that can be achieved and sustained in the future, given:
1. the size of the labor force
2. expected productivity (quality of labor)
3. natural rate of unemployment
Expansion:
Actual output (Y) > Potential output (Yf)
Recession:
Actual output (Y) < Potential output (Yf)
main sources of high inflation:
-Demand rising faster than supply
-Rapid increase in the money stock
What Causes Inflation?
Nearly all economists believe that rapid expansion in the money supply is the primary cause of inflation.
3 percent.
During this century, the growth rate of real GDP in the United States has averaged approximately