Chapter 25 macro

Expansion

-output rises -the price level may rise

Cost-push inflation

A negative GDP gap

illustrates the difficulty of distinguishing between fictional, structural, and cyclical unemployment

A person quit his job in search of a better one but the former job is in a declining industry and disappears completely.

Demand-pull inflation

A positive GDP gap

The non-economic effects of unemployment include

A sense of failure created and parents and and their children

Unemployment is an economic problem because

A unit of labor resource that could be engaged and production is sitting idol.

A recession

An expansion usually follows ____in a business cycle

A business cycle

Are alternating rises and declines in the level of economic activity, sometimes over several years.

A key issue in macroeconomics is why the economy sees:

Business cycle fluctuations rather than slow, smooth growth

Firms sell fewer units of output

Consequence of unexpected lower total spending in the short-run when prices are sticky

Shocks

Economic theories are founded on the idea that economic fluctuations are driven by:

Deflation means

Means prices are Falling

The normal interest rate

Minus the inflation rate is the real interest rate

Recessions

Output and employment are falling

Inflation means

Overall prices are Rising

Inflation

Reduces the purchasing power of the dollar

Macroeconomics

The economy sees business cycle fluctuations rather slow, smooth growth is a central issue

Peak

The phase of the business cycle at which the economy is a full employment is known as

The labor force is

The sum of the employed and unemployed

Consequences of unexpected lower total spending in the short-run when prices are sticky

Unemployment rises, firms sell fewer units of outputs, GDP declines

Economic shocks

Unexpected events that drive economic cycles and fluctuations are called

The consequence of a negative GDP gap is that

What is not produced is lost forever and future economic growth will be less

Adjust slowly

When negative shocks occur, changes in output and employment occur in the short- run and prices:

Macroeconomic

Why the economy sees business cycle fluctuations rather than slow, smooth growth is a central issue of

Comparing the value of the "market basket" of goods that consumers typically purchase to the value of the basket in a base year

Consumer Price index (CPI)

Expansion

In a trough of a ____output and employment "bottom out" at their lowest levels.

Business cycle

Irregular innovation, monetary factors, unexpected changes in the levels of Total spending, political events, financial instability and productivity changes are all sources

Price stickiness

Is a major factor preventing the economy from rapidly adjusting to shocks

Output; Employment

It is widely accepted that the immediate cause of large cyclical changes in levels of ____ and _____ is the level of unexpected total spending.