Tracking the Business Cycle ch 9

These flashcards cover key concepts related to tracking the business cycle, macroeconomic trends, and data analysis from the lecture notes.

What do business cycles reflect?

The tendency for actual output to deviate from potential output.

How are business cycles characterized?

They are not cycles; they vary in causes, duration, and depth.

What is output gap?

The difference between actual output and potential output, expressed as a percentage.

Define economic expansion.

A period of increasing economic activity that runs from trough to peak.

Define recession.

A period of declining economic activity, running from peak to trough.

What is the potential output?

The level of output when all resources are fully employed.

What is a negative output gap?

When the economy is producing less than its potential, often referred to as a bust.

What is a positive output gap?

When the economy produces more than its potential, known as a boom.

What causes the business cycle to fluctuate?

Adverse shocks that can impact the economy and cause expansions or recessions.

What is Okun's rule of thumb?

For every percentage point actual output is less than potential output, unemployment will rise by about half a percentage point.

What indicates the state of the economy next year?

The current year's economic conditions and business cycle persistence.

What are leading indicators?

Variables that tend to predict future economic paths, changing first before the economy does.

What are lagging indicators?

Variables that follow economic movements with a delay, such as unemployment.

What is seasonally adjusted data?

Data that has been stripped of predictable seasonal patterns to reveal underlying trends.

Which economic indicator measures total output size?

Real GDP.

What does the unemployment rate indicate?

The share of the labor force that wants to work but cannot find a job.

What is the business confidence index?

A measure of what managers are planning regarding investments and production.

What does a recession usually lead to concerning employment?

A rise in unemployment rates.

What are the two types of economic indicators tracked?

Leading indicators and lagging indicators.

Why are revisions important in economic data?

They provide updated estimates based on more complete data after initial releases.

What is a common feature of business cycles?

Recessions are generally short and sharp, while expansions are long and gradual.