What is a business cycle?
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.
Market-based economies are driven by:
everchanging forces of supply and demand.
What are the four phases of a business cycle?
What is a peak?
The phase of the business cycle in which real GDP reaches its maximum after rising during a recovery.
What is a recession?
A downturn in the business cycle during which real GDP declines, and the unemployment rate rises.
What is a trough?
The phase of the business cycle in which real GDP reaches its minimum afer falling during a recession.
What is an expansion?
An upturn in the business cycle during which real GDP rises.
What is economic growth?
An expansion in national output measured by the annual percentage increase in a nation’s real GDP.
What factors are key reasons for economic growth?
Increases in resources and technological advancements.
Why do we value economic growth as one of our nation’s economic goals?
It increases our standard of living and creates a bigger “economic pie”.
What are business-cycle indicators?
What are leading indicators?
Variables that change before real GDP changes
What are coincident indicators?
Variables that change at the same time that real GDP changes.
What are lagging indicators?
Variables that change after real GDP changes.
What is the unemployment rate?
The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs.
What is the civilian labor force?
The number of people 16 years of age and older who are employed, or are actively seeking a job.
Who does the civilian labor force exclude?
Members of the armed forces, homemakers, discouraged workers, and other persons not in the labor force.
How do you calculate the unemployment rate?
The # of unemployed over the # of people in the civilian labor force multiplied by 100.
What is the unemployment rate criticized for?
For both understating and overstating the “true” unemployment rate.
What are discouraged workers?
People who want to work, but have given up the search because they believe they will find no job offers.
What are the types of unemployment?
What is frictional unemployment?
Temporary unemployment caused by the time required of workers to move from one job to another (the workers have the skills and there are jobs available)
What is structural unemployment?
Caused by mismatch of the skills of workers out of work and the skills required for existing job opportunities (the workers do NOT have the skills and there are jobs available)
What is cyclical unemployment?
Unemployment caused by the lack of jobs during a recession (the workers have the skills and there are NO jobs available)
What is seasonal unemployment?
Jobs only available during seasons.
What is outsourcing?
The practice of a company having its work done by another company in another country.
What is offshoring?
The practice of having work for a company performed by the company’s employees located in another country.
What is full employment?
When the economy operates at an unemployment rate equal to the sum of frictional and structural unemployment rates (natural rate of unemployment)
What is the GDP gap?
The difference between actual real GDP and potential/full employment real GDP.
What does the gap between actual and potential real GDP meaure?
Monetary losses of real goods and services to the nation from operating at less than full employment.
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