Chapter 26: Business Cycles, Unemployment, and Inflation

Alternating rises and declines in the level of economic activity, sometime over several years

________, heightens racial and ethnic tensions, and reduces hope for material advancement.

Business activity has reached a temporary maximum. Here the economy is near or at full employment and the level of real output is at or very close to the economy’s capacity. The price level is likely to rise during this phase.

Period of decline in total output, income, and employment. This downturn, which lasts 6 months or more, is marked by the widespread contraction of business activity in many sectors of the economy. Along with declines in real GDP, significant increases in unemployment occur.

Output and employment “bottom out” at their lowest levels

Period in which real GDP, income, and employment rise. At some point, the economy again approaches full employment.

People who are able and willing to work

Percent of labor force unemployed

Unemployed individual who is not actively seeking employment is classified as “not in the labor force”

Workers who are either searching for jobs or waiting to take jobs in the near future

Workers find it hard to obtain new jobs without retraining, gaining additional education, or relocating

Caused by decline in total spending + begins in recession phase of business cycle

Economists say that the economy is “fully employed” when it is experiencing only frictional and structural unemployment. That is, full employment occurs when there is no cyclical unemployment.

Real GDP that occurs when the economy is “fully employed”

Difference between actual and potential GDP

________ + non- durable consumer good industries insulated from effects of recession.

For every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs

Rise in the general level of prices

Main measure of inflation

Excess of spending beyond economy’s capacity to produce

Output and employment were both declining (evidence that total spending was not excessive) while the general price level was rising

Average cost of a particular level of output

Number of dollars received as wages, rent, interest, or profits

Measure of the amount of goods and services nominal income can buy; it is the purchasing power of nominal income, or income adjusted for inflation

Alternating rises and declines in the level of economic activity, sometime over several years

Business activity has reached a temporary maximum

Period of decline in total output, income, and employment

Output and employment "bottom out" at their lowest levels

Period in which real GDP, income, and employment rise

A first glance

People who are able and willing to work

Percent of labor force unemployed

Unemployed individual who is not actively seeking employment is classified as "not in the labor force"

Workers who are either searching for jobs or waiting to take jobs in the near future

Workers find it hard to obtain new jobs without retraining, gaining additional education, or relocating

Caused by decline in total spending + begins in recession phase of business cycle

Economists say that the economy is "fully employed" when it is experiencing only frictional and structural unemployment

Real GDP that occurs when the economy is "fully employed"

Difference between actual and potential GDP

For every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent occurs

Rise in the general level of prices

Main measure of inflation

Excess of spending beyond economys capacity to produce

Output and employment were both declining (evidence that total spending was not excessive) while the general price level was rising

Average cost of a particular level of output

Number of dollars received as wages, rent, interest, or profits

Measure of the amount of goods and services nominal income can buy; it is the purchasing power of nominal income, or income adjusted for inflation

Unexpected inflation

Adjustments to pay when CPI rises

Percentage increase in purchasing power that the borrower pays the lender

Percentage increase in money that the borrower pays the lender

Declines in price level

Extraordinarily rapid inflation

Unexpected inflation

Adjustments to pay when CPI rises

Percentage increase in purchasing power that the borrower pays the lender

Percentage increase in money that the borrower pays the lender

Declines in price level

Extraordinarily rapid inflation