Chapter 12: Business Cycles and Unemployment

Recession

A downturn in the business cycle during which real GDP declines, and the unemployment rate rises; also called a contraction.

Discouraged worker

A person who wants to work, but who has given up searching for work because her or she believes there will be no job offers.

Business cycle

Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.

Economic growth

An expansion in national output measured by the annual percentage increase in a nation's real GDP.

Expansion

An upturn in the business cycle in which real GDP rises; also called a recovery.

Frictional unemployment

Temporary unemployment caused by the time required or workers to move from one job to another.

GDP gap

The difference between actual real GDP and potential or full-employment real GDP

Civilian labor force

The number of people 16 years of age or older who are employed, or who are actively seeing a job, excluding members of the armed forces, homemakers, discouraged workers, and other persons not in the labor force.

Unemployment rate

The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs.

Peak

The phase of the business cycle in which real GDP reaches its maximum after rising during a recovery.

Trough

The phase of the business cycle in which real GDP reaches its minimum after falling during a recession.

Outsourcing

The practice of a company having its work done by another company in another country.

Offshoring

The practice of having work for a company performed by the company's employees located in another country.

Full unemployment

The situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates; Also called the natural rate of unemployment.

Structural unemployment

Unemployment caused by a mismatch of the sills of workers out of work and the skills required for existing job opportunities.

Cyclical unemployment

Unemployment caused by the lack of jobs during a recession.

Lagging indicators

Variables that change after real GDP changes.

Coincident indicators

Variables that change at the same time that real GDP changes.

Leading indicators

Variables that change before real GDP changes.