Chapter 8

The period of declining growth in real GDP between the peak of the business cycle and the trough is called the

contractionary period

Business Cycle def....

During a recession: unemployment is higher, GDP is lower than potential GDP and demand for resources is weak. During a boom: Unemployment is below natural rate, Actual GDP is above potential GDP and demand for resources is strong

Civilian Labor Force

the # of ppl 16 years of age and older who are either employed or unemployed. To be classified as unemployed, a person must be looking for a job.

Labor Force Participation

the # of ppl in the civilian labor force 16 years of age or older who are either employed or actively seeking employment as a percentage of the total civilian population 16 years of age and older

Unanticipated inflation

high and variable

Frictional unemployment results from

scarce info about job opps and the time it takes to acquire that info

Unemployment rate:

the % of unemployed ppl in the labor force. mathematically, its is equal to the # of ppl unemployed divided by the # of ppl in the labor force

When unemployment is at its natural rate,

full employment is present

Full employment

the lvl of employment that results from the efficient use of the labor force taking into account the normal (nat'l) rate of unemployment due to information costs, dynamic changes, and structural conditions of the economy. For the US, full employment is thought to exist when ~ 95% of the labor force is employed

Potential Output

the lvl of output that can be achieved and sustained in the future, given the size of the labor force, its expected productivity, and the natural rate of unemp consistent with the efficient operation of the labor market. Actual output can differ from the economy's potential output.

The labor force participation rate is

the number of persons 16 years of age and older who are either employed or actively seeking work divided by the total noninstitutional population 16 years of age and older.

Employment/Population Ratio

the number of ppl 16+ employed as civilians divided by the total civilian population 16+. the ratio is expressed as a %

The definition of the unemployment rate is

the percentage of persons in the civilian labor force who are not employed

Structural unemployment means that

worker qualifications do not match available jobs.

labor force participation rate

# un + # emp / population

In the early 1990s, the U.S. government substantially reduced defense expenditures. The resulting unemployment of defense-related workers, who possessed skills no longer needed by the economy, is an example of

STRUCTURAL

Recession

a downturn in economic activity characterized by declining real GDP and rising unemployment.. In an effort to be more precise, many economists define a recession as two consecutive quarters in which there is a decline in real GDP.

Anticipated inflation

expected by most, low and stable

The natural rate of unemployment

is associated with the economy's max sustainable output rate

Inflation

the purchasing power of $ declines

During expansionary phase?

real GDP rises and unemployment falls

During periods of high and variable inflation, which of the following is unlikely to occur?

Individuals will want to make long-term contracts in order* to enjoy the benefits of higher prices.*

Depression

a prolonged and very severe depression

Inflation is best described as

a sustained increase in the general level of prices as indicated by a price index.

Business Cycle

fluctuations in the general level of eco activity as measured by variables such as the rate of unemployment and changes in real GDP

Which of the following would be officially classified as unemployed? a. a school administrator who has been working as a substitute teacher one day per week while looking for a full-time job in administration b. a mathematician who returned to graduate school after failing to find a job the last four months c. a 60-year-old former steel worker who would like to work but has given up actively seeking employment d. None of the above would be officially classified as unemployed.

none

Natl rate of Unemployment =

the sum of *frictional* and *structural*

unemployed

the term used to describe a person not currently employed who is either 1: actively seeking employment or 2. waiting to begin or return to a job

Frictional Unemployment

unemployment due to constant changes in the economy that prevent qualified unemployed workers from being immediately matched up with existing job openings. Results from imperfect information a search activities related to suitable matching employees with employers. they have the skill tho!!!

Cyclical Unemployment

unemployment due to recessionary business conditions and inadequate labor demand lay offs and cut backs

Structural Unemployment

unemployment due to the structural characteristics of the economy that make it difficult for job seekers to find employment and for employers to hire workers. Although job opening are available, they generally require skills many unemployed workers do not have. they dont have the skill!!