Econ 104 Quiz 5 Terms Goffe

real GDP

Fluctuations in real GDP p.c. reflect underlying fluctuations in _____________.

decline in activity

The NBER defines a recession as a large ______ ____ ____________ across the economy, lasting more than a few months, visible in income, production, and all areas.

the end of an expansion

Characteristics of __ ____ __ __ _________:

Interest rates are high

Worker wages are increasing faster

Profits of firms are decreasing

Households and firms have increasing debt

the beginning of a recession

Characteristics of __ __________ __ _ _________:

decrease in spending by firms on capital

firms that sell capital have decreasing sales

firms cut back on production and lay off workers

increasing unemployment and decreasing profits = decreasing income = decreased spending

the end of a recession

Characteristics of ___ ___ __ _ ________:

conditions improve

decreases in spending stop

households and firms decrease their debt, therefore increasing spending ability

interest rates decrease

firms increase spending on capital goods to produce

price level

measures average price of goods and services

inflation rate

percent increase in price level from one year to the next

less

As spending DECREASES, firms increase their prices ___.

decreases, increases

During a recession, the inflation rate _______ and the unemployment rate _______.

uniform, reliable, predict

Why Recessions are Hard to Predict

1. Business cycles are not _______.

2. Leading economic indicators are not ______.

3. Events that trigger a recession are hard to ______.

hired, experienced, train new workers

In a recession, firms will lay off the most recently ____ workers and try to keep the most ______ workers so they don’t have to ____ ___ _______.

complexity

The difficulty of forecasting changes in real GDP reflects the economy’s ________.

the Great Moderation, absence

“__ ____ ________” was used in the early 2000s to describe the _____ of severe recessions in the US, which was then put into question in December of 2007.

mild, expansion, recession

From 1870 to 2007, the business cycle gradually became more ___; the average length of a(n) _____ INCREASED, and the average length of a(n) ____ DECREASED (until 2007).

services, goods, unemployment, policies, stabilize, stability

Why the US experienced relative stability from 1950-2007

1. Increasing importance of _____ and declining importance of ____

2. Establishment of ________ insurance

3. Active federal government ______ to ______ the economy

4. Increased ______ of the financial system

health, increase, decrease

If the unemployment rate is higher or lower than expected in the BLS statistics, then investors are likely to change their view of the economy’s ______. Prices will _____ if unemployment is good, and _____ if unemployment is bad.

employed

in government statistics, someone who currently has a job or is temporarily away from it

unemployed

in government statistics, someone not currently employed, available for work, and who has been looking for work

labor force

employed workers + unemployed workers (or working and job searching)

unemployment rate

% of labor force that is unemployed, also called U-3, “headline” or default

discouraged workers

people who are available for work but have not looked for a job in the past four weeks because they believe no jobs are available for them

unemployment rate = unemployed/labor force x 100

unemployment rate calculation (equation)

labor force participation rate

% of the working-age population in the labor force

LFPR = labor force/population aged 16+ x 100

labor force participation rate calculation

employment-population ratio

% of working age population that’s employed

employment-population ratio = employed/working age population x 100

employment-population ratio calculation

unemployment rate, unemployed, not in the labor force

The _______ ____ is not a perfect measure of the actual state of joblessness in the economy. The challenge the BLS faces is telling the difference between the _____ and those ___ __ ___ ______ ____ (ex. discouraged workers not counted as unemployed).

longer, greater

The ____ a person is unemployed, the _____ the hardship.

labor force participation rate

(ACTUALLY READ) The ____ ____ ________ ___ is important because it determines the quantity of labor that will be available to the economy from a given population.

labor force participation rate, labor, GDP, GDP per capita

Increased ___ ____ ________ ____ = Increased amount of available _____ = Increased real ___ = Increased real ___ ____ ______

frictional unemployment

short-term unemployment arising from process of matching workers with jobs, not good to eliminate entirely because it is good for economic efficiency

structural unemployment

unemployment arising from a persistent mismatch between skills of workers and job requirements

cyclical unemployment

unemployment caused by a business cycle recession

disinflation

Reminder that ______ is LESS INFLATION.

peak

end of an expansion and a recession starts next month

trough

end of a recession and an expansion starts next month

expansion + recession

Expression for the business cycle

depression

a severe recession

5-10

Recessions as severe as COVID are very rare, but “regular” recessions come every _____ (range) years.

someone laid off six months ago who just responded to a job ad

Which person/people are officially considered unemployed?

• a stay-at-home dad

• someone laid off six months ago who just responded to a job ad

• a retired person

• a person working 20 hours who wants to work 40 hours

• someone laid off three months ago and is traveling the US full time on her savings

low

Currently, flows into and out of employment are ___ (quote from article: “___ hire, ___ fire”)

4.2%

What is the current unemployment rate?

prime-age labor force participation rate = those aged 25-54 in labor force/all aged 25-54

prime-age labor force participation rate calculation

underemployed, employed

People that are _______ are people who want to work more hours. They are counted as _______.

UR_total = UR_frictional + UR_structural + UR_cyclical

equation for total unemployment rate

expansion, zero

At the end of an ______, cyclical unemployment nears ___.

natural rate of unemployment, 0, employment, 3.5 to 5

The ______ ____ __ _________ is the rate of unemployment when:

• cyclical unemployment is ___%

• at “full ______”

• text: when the unemployment rate is from ___ to ____%

normal, unemployment

The natural rate of unemployment is what we can reasonably expect the “____” rate of ________ to be.

Potential GDP, capacity

_____ ___ is real GDP when all firms are operating at ______.

maximum, sustainable, below, above

At “capacity” does NOT mean ______ possible. It means at a _______ level. In 2020, we were operating _____ potential, and in 2021-2022, real GDP was operating ____ potential.

marginally attached workers

Workers who want to work and looked in the last 12 months but not last month due to:

1. non-economic reasons

2. being discouraged

U-6 UR = (unemployed + marginally attached + part-time but want full time)/(labor force + marginally attached)

equation for underemployment rate (U-6)