Macroeconomics: Business Cycles, Unemployment, and Inflation

These flashcards cover key concepts related to business cycles, unemployment, and inflation as discussed in the macroeconomics lecture.

Business Cycle

Alternating increases and decreases in economic activity over time.

Phases of the Business Cycle

The four phases are: Peak, Recession, Trough, and Expansion.

Cyclical Unemployment

Unemployment caused by the recession phase of the business cycle.

Frictional Unemployment

Unemployment that occurs when individuals are searching for jobs or waiting to take jobs soon.

Structural Unemployment

Unemployment due to changes in the structure of the demand for labor.

Natural Rate of Unemployment (NRU)

The full employment rate of unemployment that can vary over time due to factors like demographic changes and public policy.

GDP Gap

The difference between actual GDP and potential GDP.

Okun’s Law

A principle stating that for every 1% of cyclical unemployment, a –2% GDP gap is created.

Inflation

A general rise in the price level that reduces the purchasing power of money.

Consumer Price Index (CPI)

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

Demand-Pull Inflation

Inflation caused by excessive spending relative to output.

Cost-Push Inflation

Inflation caused by rising production costs and supply shocks.

Core Inflation

Inflation that excludes food and energy prices to focus on more stable prices.

Nominal Income

Income that is unadjusted for inflation.

Real Income

Nominal income adjusted for inflation.

Flexible-Income Receivers

Individuals who can adjust their income based on inflation (e.g., those with COLAs).

Hyperinflation

Extremely rapid inflation that exceeds 50% each month, leading to significant economic distortion.