ECON 210 Chapter 9 Flashcards

Questions and Answers

What is the straight line drawn through the business cycle curves?

The Growth trend

A recession is a decline in:

The inflation rate that lasts six months or longer

The unemployment rate that lasts six months or longer

Potential GDP that lasts six months or longer

Real GDP that lasts six months or longer (correct)

The best example of a frictionally unemployed worker is one who:

Is laid off during a recessionary period in the economy

Is in the process of voluntarily switching jobs (correct)

Is discouraged and not actively seeking work

Reduces productivity by causing frictions in a business

The natural rate of unemployment:

Is equal to the total of frictional and structural unemployment Signup and view all the answers

When inflation occurs:

The purchasing power of money decreases Signup and view all the answers

What are business cycles?

Alternating rises and declines in the level of economic activity, sometimes over several years. Signup and view all the answers

What is a peak in the business cycle?

A phase when the economy is at or near full employment and the level of real output is at its capacity. Signup and view all the answers

What is a recession?

A period of decline in total output, income, and employment lasting up to 6 months or more. Signup and view all the answers

What is a trough in the business cycle?

The point where output and employment bottom out at their lowest levels. Signup and view all the answers

What is an expansion in the business cycle?

A period in which real GDP, income, and employment rise. Signup and view all the answers

What does the labor force consist of?

People who are able and willing to work, both those who are employed and unemployed but actively seeking work. Signup and view all the answers

What is the unemployment rate?

The percentage of the labor force that is out of work. Signup and view all the answers

What is part-time employment?

People who are working less hours than full-time employees. Signup and view all the answers

Who are discouraged workers?

Employees who have left the labor force because they have not been able to find employment. Signup and view all the answers

What is frictional unemployment?

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs. Signup and view all the answers

What is structural unemployment?

Unemployment of workers whose skills are not demanded by employers or who cannot move to where jobs are available. Signup and view all the answers

What is cyclical unemployment?

Unemployment caused by insufficient total spending (or by insufficient aggregate demand). Signup and view all the answers

What is the natural rate of unemployment (NRU)?

The full-employment rate of unemployment occurring when there is no cyclical unemployment. Signup and view all the answers

What is potential output?

The real output (GDP) an economy can produce when it fully employs its available resources. Signup and view all the answers

What is the GDP gap?

The difference between actual and potential GDP. Signup and view all the answers

What is Okun's Law?

The generalization that for every 1% point the actual unemployment rate exceeds the natural, a negative GDP gap of 2% occurs. Signup and view all the answers

What does full employment mean?

An economy is only experiencing frictional and structural unemployment. Signup and view all the answers

What is inflation?

A rise in the general level of prices. Signup and view all the answers

What is the Consumer Price Index (CPI)?

An index that measures the prices of a fixed 'market basket' of some 300 goods and services bought by a typical consumer. Signup and view all the answers

What is deflation?

A decrease in the general price level. Signup and view all the answers

Study Notes

Business Cycle Concepts

The Growth Trend represents the straight line through business cycle curves, indicating potential economic growth over time.
Business Cycles refer to alternating rises and declines in economic activity over several years.
Key phases of the business cycle include Peak, Recession, Trough, and Expansion:
- Peak: Economy is at or near full employment, with real output close to capacity.
- Recession: A period marked by a decline in total output, income, and employment, lasting six months or more, characterized by decreased real GDP.
- Trough: The lowest point in the business cycle, where output and employment bottom out; marks the transition from recession to expansion.
- Expansion: A phase where real GDP, income, and employment increase.

Employment and Unemployment Paradigms

The Labor Force includes individuals who are willing and able to work, comprising both employed and actively seeking unemployed individuals.
Unemployment Rate is calculated as (unemployed/labor force) x 100, representing the proportion of the labor force without jobs.
Natural Rate of Unemployment (NRU) reflects full-employment conditions with no cyclical unemployment, indicating the rate where inflation aligns with expectations.

Types of Unemployment

Frictional Unemployment: Results from workers voluntarily changing jobs or being temporarily laid off, representing a normal transition in employment.
Structural Unemployment: Occurs when workers' skills do not meet job demands or they cannot relocate to areas with job openings.
Cyclical Unemployment: Caused by insufficient demand or total spending in the economy.
Discouraged Workers are individuals who have left the labor force due to unsuccessful job searches.

Economic Outputs and Gaps

Potential Output is the maximum real GDP an economy can produce while fully utilizing its resources.
GDP Gap calculates the difference between actual GDP and potential GDP, represented as actual GDP minus potential GDP.
Okun's Law indicates that a 1% increase in actual unemployment above the natural rate corresponds with a 2% negative GDP gap.

Inflation and Price Indices

Inflation signifies a general rise in price levels, leading to a decrease in money's purchasing power.
Consumer Price Index (CPI) measures the price variation of a fixed "market basket" of approximately 300 goods and services, reflecting typical consumer expenditure.
Deflation is identified as a decrease in the general price level, contrary to inflationary trends.

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Description

Test your knowledge on the key concepts of Chapter 9 in ECON 210. This set of flashcards covers important terms such as business cycles, growth trends, and components of recession. Perfect for students looking to reinforce their understanding of economic principles.