Macroeconomics chapter 6 notes

Recession

A downturn in the business cycle during which real GDP declines Also called a contraction

Discouraged workers

A person who wants to work, but who has given up searching for work because he 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

Expansion

An upturn in the business cycle during which real GDP rises. Also called recovery

Suppose the official unemployment rate is 10%. We can conclude without question that... A) the same 10% of the people in the economy were out of worm for the r B) 1 out of every 10 people in the civilian labor force is currently unemployed C) the same 10% of the people in the civilian labor force was out of work for the entire year D) each person in the civilian labor force was out of work for 10% of the year

B) 1 out of 10 people in the civilian labor force is currently unemployed

John Steinbeck's Cannery Row describes a character who takes his own life because of poor job prospects. If he was an unemployed person who gave up looking for work, he would be considered... A) chronically unemployed B) a discouraged worker C) a member of the labor force D) frictionally unemployed

B) a discouraged worker

In exhibit 1, the expansion phase of the business cycle is represented by points... A) a and c B) b and f C) b and d D) c and g

B) b and f

What stage of the business cycle immediately follows the trough? A) peak B) recovery C) recession D) depression

B) recovery

The increase in unemployment associated with a recession called... A) structural unemployment B) frictional unemployment C) discouraged unemployment D) cyclical unemployment

D) cyclical unemployment

The government's chief forecasting gauge for business cycles is the... A) unemployment rate B) real GDP C) personal income index D) index of leading indicators

D) index of leading indicators

Economic growth

Defined by economists as an expansion in national output measured by the annual percentage increase in a nation's real GDP

Which of the following is true? A) the GDP gap is the difference between full employment real GDP and actual real GDP B) we desire economic growth because it increases the nation's standard of living C) economic growth is measured by the annual percentage increase in a nation's real GDP D) discouraged workers are a reason critics say the unemployment rate is understated E) all of the above answers are correct

E) all of the above are correct

Types of unemployment

Frictional Structural Cyclical

Economic indicators are classified in three categories...

Leading indicators Coincident indicators Lagging indicators

Phases of a business cycle

Peak Recession Trough Recovery

Frictional unemployment

Temporary unemployment caused by the time required of workers to move from one job to another Also called transitional unemployment or search unemployment Short term unemployment

full employment

Th 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 or potential real GDP

GDP gap

The difference between full employment real GDP and actual GDP

Civilian labor force

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

Trough

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

Unemployment rate

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

Peaks

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

Outsourcing

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

Structural unemployment

Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities Long term unemployment

cyclical unemployment

Unemployment caused by the lack of jobs during a recession

Lagging indicators

Variables that change after real GDP changes Examples: Unemployment rate, duration of unemployment, labor cost per unit of output, consumer price index for services, commercial and industrial loans, consumer credit to personal income ratio, and prime rate

Offshoring

Work for a company performed by the company's employees located in another country

Frictional unemployment refers to... A) people who are out of work and have no job skills B) short periods of unemployment needed to match jobs and job seekers C) people who spend relatively long periods out of work D) unemployment related to the ups and downs of the business cycle

B) short period of unemployment needed to match jobs and job seekers

Which of the following is not a lagging indicator? A) duration of unemployment B) stock prices C) commercial and industrial loans D) prime rate

B) stock prices

A person who has given up searching for work is called... A) frictionally unemployed B) structurally unemployed C) a discouraged worker D) unemployed

C) a discouraged worker

Sally lost her job when her company went out of business because of a recession. This is an example of... A) frictional unemployment B) structural unemployment C) cyclical unemployment D) technological unemployment

C) cyclical unemployment

Unemployment that is of a short duration to allow a person time to find a new job is... A) structural unemployment B) cyclical unemployment C) frictionally unemployment D) durational unemployment

C) frictionally unemployment

Consider a broom factory that permanently closes because of foreign competition. If the broom factory's workers cannot find new jobs because their skills are no longer marketable, the are classified as... A) seasonally unemployed B) frictionally unemployed C) structurally unemployed D) cyclically unemployed

C) structurally unemployed

Coincident indicators

Variables that change at the same time real GDP changes Examples: Employment, personal income, industrial production, and sales to rise. Non agricultural payrolls, personal income minus transfer payments, industrial production, and manufacturing and trade sales.

Leading indicators

Variables that change before real GDP changes Examples: Average workweek, unemployment claims, new consumer goods orders, delayed deliveries, new orders for plant and equipment, new building permits, stock prices, money supply, interest rates, and consumer expectations.