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Econ Chapter 12

Business Cycle
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP
Four phases of business cycle
1) Peak
2) Recession (contraction)
3) Trough
4) Expansion
Peak
The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery
Recession
A downturn in the business cycle during which real GDP declines, and the unemployment rate rises. Also called a contraction. As a general rule, at least two consecutive quarters in which real GDP declines
Trough
The phase of the business cycle in which real GDP reaches its minimum after falling during a recession
Expansion (recovery)
An upturn in the business cycle during which real GDP rises. Also called an recovery.
economic growth
An expansion in national output measured by the annual percentage increase in a nation’s real GDP
3 types of economic indicators
1) Leading
2) Coincident
3) Laggin
Leading Indicator
Variables that change before real GDP changes
Leading Indicators
Average workweek
Unemployment claims
New consumer goods orders
Delayed deliveries
New orders for plant and equipment
New building permits
Stock prices
Money supply
Interest rates
Consumer expectations
coincident indicator
Variables that change at the same time that real GDP changes
Coincident indicators
Nonagricultural payrolls
Personal income minus transfer payments
Industrial production
Manufacturing and trade sales
Lagging indicator
Variables that change after real GDP changes
Lagging indicators
Unemployment rate
Duration of unemployment
Labor cost per unit of output
Consumer price index for services
Commercial and industrial loans
Commercial credit to personal income ratio
Prime interest rate
Unemployment rate
The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs
Civilian labor force
People 16 years or older who are either employed or actively seeking a job, excluding members of the armed forces, homemakers, and people in institutions
Employed
Anyone who works at least one hour a week for pay or at least 15 hours per week as an unpaid worker in a family business
Unemployed
Anyone who is 16 years of age and above who is actively seeking employment
Discouraged worker
A person who wants to work, but who has given up searching for work
Not in labor force
Armed forces
Household workers
Students
Retirees
Persons with disabilities
Institutionalized persons
Discouraged workers

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