Chapter 2: Business Cycle, Employment, and Inflation

These flashcards cover key concepts related to the business cycle, inflation, and employment, as outlined in Chapter 2.

Business Cycle

Alternating increases and decreases in economic activity over time.

Inflation

The rate at which the general level of prices for goods and services is rising.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

Peak

The highest point of economic activity in the business cycle, characterized by full employment.

Trough

The lowest point of economic activity in the business cycle, marking the end of a recession.

Economic Contraction

A period of declining economic performance across an economy.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment.

Natural Rate of Unemployment (NRU)

The level of unemployment consistent with a stable rate of inflation.

Frictional Unemployment

Temporary unemployment during transitions from one job to another.

Structural Unemployment

Unemployment resulting from industrial reorganization or technological change.

Demand-Pull Inflation

Inflation that occurs when demand for goods and services exceeds supply.

Okun's Law

A principle that describes the relationship between unemployment and economic output.

Core Inflation

A measure of the long-term trend in the price level, excluding food and energy prices.

Nominal Income

Income measured in current dollars, not adjusted for inflation.

Real Income

Income adjusted for inflation, reflecting the actual purchasing power.

Average Propensity to Consume (APC)

The fraction of total income that is consumed.

Marginal Propensity to Consume (MPC)

The proportion of any additional income that is spent on consumption.

Investment Demand Curve

Illustrates the inverse relationship between the interest rate and the amount of investment.

Multiplier Effect

The proportional amount of increase in final income that results from an injection of spending.

Aggregate Expenditures

The total amount spent in an economy in a given time period.