Economics Unit 4: GDP, Inflation, Unemployment, Business Cycle

Macroeconomics

The study of the economy as a whole

US economic goals

growth, price stability & full employment

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country.

GDP components

consumption, investment, government spending, net exports

secondhand goods

do not count towards GDP. goods that have already been final and then sold as used

non-market transactions

transactions that do not take place in the market and would not be included in GDP

Consumption

spending by households on goods and services, with the exception of purchases of new housing. Makes up 70% of GDP

Recession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters (6 months).

inflation

A general and progressive increase in prices

deflation

a decrease in the general level of prices, which is not a good indication of growth. Occurs in recessions.

1970s Inflation

The inflation at the time was referred to as Stagflation, an unusual period of history in which there was high inflation and stagnant economic growth. The event has been blamed on both oil prices and the monetary policies of the government.

cyclical unemployment

unemployment caused by a business cycle recession

frictional unemployment

unemployment that occurs when people take time to find a job, or quit their job to find something else, or re-enter the workforce

structural unemployment

unemployment that occurs when workers' skills do not match the jobs that are available or their job has been replaced by automation or AI technology

labor force

all nonmilitary people who are employed or unemployed (unemployed + employed)

Consumer Price Index

The key measure of inflation- the change in the cost of buying a fixed basket of goods and services.

purchasing power

the real goods and services that money can buy; determines how far your money can go

decreased purchasing power

occurs when there is inflation- felt most by people on a fixed income.

business cycle

Alternating periods of economic expansion and economic recession

Demand Pull Inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, too much money chasing too few goods.

unemployment rate

the percentage of the labor force that is unemployed (unemployed/labor force x 100)

minimum wage

a minimum price that an employer can pay a worker for an hour of labor

Current U.S. federal minimum wage

$7.25 per hour (same in Texas)

business cycle order

peak, contraction, trough, expansion.

When GDP is at it's highest point in the business cycle it is referred to as ______

the peak

natural rate of unemployment

the normal rate of unemployment, consisting of frictional unemployment and structural unemployment

Current US goal for unemployment

Under 5%

discouraged workers

individuals who would like to work but have given up looking for a job

Underemployed

working at a job for which one is overqualified, or working part-time when full-time work is desired