Economic Instability

Stabilization policy

The government attempts to keep the economy healthy by implementing..... to help keep unemployment and inflation in check.

Unemployment rate

The government measures unemployment using a statistic called the... that is the percentage of the civilian labor force that is unemployed and actively looking for work.

underground economy

The unemployment rate can be difficult to measure since it does not take into account any transactions by people who do not follow federal and state laws with respect to reporting earnings, these activities are part of the

full employment

When the economy is growing strong it may be able to achieve...a condition of the economy when the unemployment rate falls below a certain percentage.

Inflation

A prolonged rise in the general price level is known as of final goods and services are called

Demand pull inflation

There are several theories about what causes inflation, including... which theorizes that prices rise as a result of demand increasing faster than supply, which results in shortages that lead to higher prices.

cost push inflation

Other economists think inflation comes from the supply side, and have a theory that higher wages push up prices, this is called.... also known as the wage price spiral

stagflation

Sometimes we have a difficult position in the economy when the economy is stagnant (not growing) combined with inflation called ...

Seasonal Unemployment

Occurs because the demand is higher or lower depending on time of year
Ex. a farm worker loses his job after the harvest.

Structural Unemployment

Occurs because people skills do not match job opportunities
Ex. A factory worker replaced by machinery

Frictional Unemployment

Occurs because of Transition
Ex. Leaving one job for a better job, or graduating college and looking for a first job

Cyclical Unemployment

Occurs by contractions of the business cycle
Ex. Getting laid off because a company is forced to downsize, like in the recession of 2008

What is the main difference between seasonal unemployment and structural unemployment?

Seasonal Unemployment occurs because of schedules, whereas structurally occurs because people lack skills.

According to demand pull theory, what is responsible for inflation?

Demand for goods and services exceeds supply.

According to cost push theory, what is responsible for inflation?

Producers raise prices to meet increased costs.