CH8 ECO2013

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