Business Cycles and Unemployment

Flashcards about Business Cycles and Unemployment

Business cycle

Alternating periods of economic growth and contraction, which can be measured by changes in real GDP

Four phases of a business cycle

Peak, Recession, Trough, Recovery

Peak

The phase of the business cycle in which real GDP reaches its maximum after rising during a recovery

Recession

A downturn in the business cycle during which real GDP declines, and the unemployment rate rises; also called a contraction

When does the economy operate in a recession?

A recession consists of at least two consecutive quarters (six months) in which there is a decline in real GDP.

Trough

The phase of the business cycle in which real GDP reaches its minimum after falling during a recession

Expansion

An upturn in the business cycle during which real GDP rises; also called a recovery

Economic growth

An expansion in national output measured by the annual percentage increase in a nation’s real GDP

Value of Economic Growth

Increases our standard of living, it creates a bigger 'economic pie'.

Three types of economic indicators

Leading, Coincident, Lagging

Leading indicators

Variables that change before real GDP changes

Coincident indicators

Variables that change at the same time real GDP changes

Lagging indicators

Variables that change after real GDP changes

Causes of business cycles

Changes in total or aggregate expenditures

Unemployment rate

The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs

Who is classified as employed?

A person who works at least 1 hour per week for pay or at least 15 hours per week as an unpaid worker in a family business

Who is classified as unemployed?

A person who does not have a job but has looked for work in the last month

Civilian labor force

The number of people 16 years of age and older who are employed or who are actively seeking a job, excluding armed forces, homemakers, discouraged workers, and other persons not in the labor force

Discouraged worker

A person who wants to work, but who has given up searching for work because he or she believes there will be no job offers.

Three Types of Unemployment

Frictional, Structural, Cyclical

Frictional unemployment

Temporary unemployment caused by the time required of workers to move from one job to another

Structural unemployment

Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities

Outsourcing

The practice of a company having its work done by another company in another country

Offshoring

The practice of work for a company performed by the company’s employees located in another country

Cyclical unemployment

Unemployment caused by the lack of jobs during a recession

Full employment

The situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates; also called the natural rate of unemployment

GDP gap

The difference between actual real GDP and potential or full-employment real GDP

What does the GDP gap measure?

The GDP gap measures the cost of cyclical employment.