ap macro ch. 26 outline

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22 Terms

1
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peak

business activity has reached a temporary maximum

2
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recession

declining real GDP accompanies by lower real income and higher unemployment

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trough

business cycle has reached a temporary minimum

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expansion

real GDP, income, and unemployment rise

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labor force

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

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unemployment rate

percentage of the labor force unemployed at a time

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frictional unemployment

unemployed workers between jobs

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structural unemployment

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

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cyclical unemployment

insufficient total spending (or by insufficient total aggregate demand)

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GDP gap

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

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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

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consumer price index

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

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demand pull inflation

caused by an increase in aggregate demand

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cost push inflation

caused by an increase in aggregate supply

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hyperinflation

a very rapid rise in the price level

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

possible general sources that can influence business cycles

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

what is the difference between durable and nondurable goods

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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

19
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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

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fixed income receivers, savers, and creditors

3 key categories of people that are hurt by inflation

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flexible income receivers and debtors

people who are helped by inflation

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real interest rate + inflation premium = nominal interest rate

what is the formula for calculating the nominal interest rate