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Macro Chapter 6

Business cycle
Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.
The four phases of the business cycle
Peak, Recession(contraction), Trough, Recovery (expansion).
Peak
The phase of the business cycle during which real GDP reaches it’s maximum after a recovery.
Recession
A downturn in the business cycle during which real GDP declines and unemployment rate increases.
Trough
The phase of the business cycle in which real GDP reaches its minimum after falling during a recession.
Recovery
An upturn in the business cycle during which real GDP rises. This is also known as an expansion.
Economic Growth
An expansion in national output measured by the actual percentage increase in the nation’s real GDP.
Goal of economic growth?
To increase our standard of living “Make a bigger slice of the pie.”
What are the three types of economic indicators
Leading, Coincident, Lagging.
Leading indicators
Variables that change before Real GDP changes.
Coincident indicators
Variables that change during real GDP changes.
Prime examples of coincident indicators
Nonagriculture payrolls, personal income – transfer payments, industrial production, manufacturing and trade sales.
Lagging indicators
Variables that change after real GDP changes.
Unemployment rate
The percentage of people in the civilian labor force who are without jobs who are actively looking for jobs.
Civilian labor force
People 16 years or older who are either employed or actively seeking a job.
Who is considered employed?
Anyone who works one hour for pay or at-least 15 hours as an unpaid worker in the family business.
Who is considered unemployed?
Anyone who is 16 years and older who is actively seeking employment.
Discouraged worker
A person who wants to work, but who has given up searching for work.
How to calculate unemployment rate?
(unemployed/civilian labor force) * 100
What are the criticisms of the unemployment rate?
1. Does not include discouraged workers.
2. Includes part-time workers.
3. Not measure underemployment.
Underemployment
People working at jobs below their skill level.
What are the types of unemployment?
Frictional, Structural, Cyclical.
Frictional Unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
Structural Unemployment
unemployment that occurs when workers’ skills do not match the jobs that are available
Cyclical Unemployment
Unemployment caused by the lack of jobs due to a recession.
Full employment
When an economy operates at an unemployment rate equal to the sum of frictional, structural, and cyclical rates. Also known as the natural rate of unemployment.
What is the GDP gap?
The difference between actual real and full employment real GDP.
GDP = actual real GDP – potential real GDP.

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