business cycle
short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions
depression
a very deep and prolonged downturn
recession
a period of economic downturn when output and employment are falling
expansions
periods of economic upturns when output and employment are rising
employment
the number of people currently employed in the country
unemployment
the number of people who are actively looking for work but aren't currently employed
labor force
equal to the sum of employment and unemployment
output
the quantity of goods and services produced
aggregate output
the economy's total production of goods and services for a given time period
inflation
rising overall price level
deflation
falling overall price level
price stability
the aggregate price level is changing only slowly
economic growth
an increase in the maximum amount of goods and services an economy can produce
model
a simplified representation used to better understand a real-life situation
other things equal assumption
means that all other relevant factors remain unchanged. This is also known as the ceteris paribus assumption
Unemployment rate
percentage of the labor force that is unemployed
CYU#1 - Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
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CYU#2 - Describe who gets hurt in a recession and how they are hurt.
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MC#1 - During the recession phase of a business cycle, which of the following is likely to increase?
a. the unemployment rate
b. the price level
c. economic growth rates
d. the labor force
e. wages
MC#2 - The labor force in made up of everyone who is
a. employed
b. old enough to work.
c. actively seeking work.
d. employed or unemployed.
e. employed or capable of working.
MC#3 - A sustained increase in aggregate output over several decades represents
a. an expansion.
b. a recovery.
c. a recession.
d. a depression.
e. economic growth.
MC#4 - Which of the following is most likely a result of inflation?
a. falling employment
b. a dollar will buy more than it did before
c. people are discouraged from holding cash
d. price stability
e. low aggregate output per capita
MC#5 - The OTHER THINGS EQUAL ASSUMPTION allows economists to
a. avoid making assumptions about reality
b. focus on the effects of only one change at a time.
c. oversimplify.
d. allow nothing to change in their model.
e. reflect all aspects of the real world in their model.
FRQ#1 - Define an expansion and economic growth, and explain the difference between the two concepts.
i. expansion - period of recovery after an economic downturn
ii. economic growth - an increase in the productive capacity of the economy
iii. EXPANSION can occur regardless of any increase in the economy's long-term potential for production, and it only l
FRQ#2 - Define inflation, and explain why an increase in the price of donuts does not indicate that inflation has occurred.
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