exam 2 chapt 8

This set of flashcards covers key concepts related to unemployment rates, labor force participation, and the business cycle.

Natural Rate of Unemployment

The level of unemployment that exists when the economy is operating at full employment, influenced by demographic factors and public policy.

Cyclical Unemployment

The difference between the actual unemployment rate and the natural rate of unemployment, indicating the economy's performance relative to its sustainable output.

Labor Force Participation Rate

The percentage of the civilian population (over 16) that is in the labor force, calculated as Labor Force/Civilian Population.

Unemployment Rate

The percentage of the labor force that is unemployed, calculated as Unemployed/Labor Force.

Potential Output

The maximum sustainable level of GDP an economy can produce when operating at full employment without causing inflationary pressures.

Unanticipated Inflation

Inflation that is not expected, which can take forms such as double-digit inflation, hyperinflation, and deflation.

Anticipated Inflation

Inflation that is expected and can lead to price stability in an economy.

Discouraged Workers

Individuals who desire a job but have stopped looking for work because they believe no jobs are available.

Marginally Attached Workers

Individuals who are not currently in the labor force but want a job and have looked for work recently.

What are the three types of unemployment?

Frictional, Structural, Cyclical

What causes frictional unemployment?

Short-term job searching or transitions between jobs.

What causes structural unemployment?

A mismatch between workers’ skills and job requirements.

What causes cyclical unemployment?

Economic downturns (recessions or sluggish recovery).

What factors affect the natural rate of unemployment?

Demographics (e.g., young workers) and public policy (e.g., unemployment benefits).

Who is counted in the labor force?

Employed people and unemployed individuals actively seeking work.

Who is NOT counted in the labor force?

Discouraged workers, retirees, full-time students (not job-seeking), stay-at-home parents, long-term disabled, and institutionalized individuals.

What does U3 unemployment include?

Only those actively seeking work (official rate).

What does U6 unemployment include?

U3 + discouraged workers + marginally attached + underemployed.

What are the four phases of the business cycle?

Expansion, Peak, Recession, Trough

What is double-digit inflation?

Inflation of 10% or more annually.

What is hyperinflation?

Extremely rapid inflation (e.g., 100%+ per month)