Business Cycle
Short run alteration between economic downturns (Recessions) and upturns(Expansions)
Depression
Very deep and prolonged downturn
Recessions
periods of economic downturns when output and employment are falling
Expansions
or recoveries, are periods of economic upturns when output and employment are rising
Employment
Number of people currently employed in an economy
Unemployment
Number of people who are actively looking for work but aren't currently employed.
Labor force
Equal to the sum of employment and unemployment
Unemployment rate
the percentage of the labor force that is unemployed
Output
Quantity of goods and services produced
Aggregate output
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
When an economy's aggregated price level is changing only slowly
Economic growth
An increase in the maximum amount of good 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. "Ceteris Paribus
How long is the average Recession?
10 months
How long is the average Expansion?
57 months
Thought experiments
Simplified, hypothetical versions of real-life situations
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?
We talk about business cycles for the economy as a
whole because recessions and expansions are not confined
to a few industries�they reflect downturns and
upturns for the economy as a whole. The data clearly
show that in the steep downturns, almost every
Describe who gets hurt in a recession and how they are hurt.
Recessions cause a great deal of pain across the entire
society. They cause large numbers of workers to lose their
jobs and make it difficult for workers to find new jobs.
Recessions reduce the standard of living of many families
and are usually associate
During the recession phase of a business cycle, which of the following is likely to increase?
the unemployment rate
The labor force is made up of everyone who is
employed or unemployed.
Which of the following is the most likely result of inflation?
people are discouraged from holding cash
A sustained increase in aggregate output over several decades represents
economic growth
The other things equal assumption allows economists to
focus on the effects of only one change at a time.
Define an expansion and economic growth,and explain the difference between the two concepts.
An expansion can occur regardless of any increase in the economy's long-term potential for production, and it only lasts until the next downturn, while economic growth increases the economy's ability to produce more goods and services over the long term.
Define inflation,and explain why an increase in the price of donuts does not indicate that inflation has occurred.
Inflation is an overall increase in the price of goods and services throughout an economy. If inflation occurs, the price of donuts will most likely increase, but an increase in the price of this one good does not indicate inflation. For example, the pric