ap macro ch. 26 outline

peak

peak

business activity has reached a temporary maximum

recession

declining real GDP accompanies by lower real income and higher unemployment

trough

business cycle has reached a temporary minimum

expansion

real GDP, income, and unemployment rise

labor force

people 16 years and older who are employed or unemployed and seeking work

unemployment rate

percentage of the labor force unemployed at a time

frictional unemployment

unemployed workers between jobs

structural unemployment

workers whose skills are either not wanted or lacking to obtain employment (also those who cannot easily move)

cyclical unemployment

insufficient total spending (or by insufficient total aggregate demand)

GDP gap

actual GDP minus the potential GDP that can be a positive or a negative amount

okun's law

generalization that a 1% point rise in the unemployment rate above the full employment rate of unemployment is associated with a rise in the negative GDP gap by 2% of potential output

consumer price index

measures the prices of the fixed "market basket" of some 300 goods/services bought by a "typical" consumer

demand pull inflation

caused by an increase in aggregate demand

cost push inflation

caused by an increase in aggregate supply

hyperinflation

a very rapid rise in the price level

irregular innovation, productivity changes, monetary factors, political events, and financial instability

possible general sources that can influence business cycles

durable goods suffer more in a recession, durable-capital, nondurable-service

what is the difference between durable and nondurable goods

the difference between actual GDP and potential GDP; actual GDP - potential GDP = GDP gap

what is a GDP gap and how do you calculate it

you use nominal income to find the real income which is a measure of amount of goods/services nominal income can buy

what is the difference between nominal and real income

fixed income receivers, savers, and creditors

3 key categories of people that are hurt by inflation

flexible income receivers and debtors

people who are helped by inflation

real interest rate + inflation premium = nominal interest rate

what is the formula for calculating the nominal interest rate