Business Cycles, Unemployment, & Inflation

A set of 80 flashcards to help review key concepts from the lecture on Business Cycles, Unemployment, & Inflation.

What does the phrase 'it's not about where you're going, it's how you get there' imply in the context of economics?

The process and methods of achieving economic outcomes are just as important as the outcomes themselves.

What does the Malthusian Principle predict?

Population growth will outstrip the rate of food growth, leading to widespread death and tyranny.

What major event in 1780 is referred to as the 'jail break' that led to the Great Divergence?

The Industrial Revolution and the harnessing of energy from coal, gas, and oil.

What distinguishes countries that experienced growth during the Great Divergence from those that did not?

Private property, free markets, competition, division of labor, and social cooperation.

Define a recession according to economists.

Two consecutive quarters of negative GDP growth.

What defines a bear market in stocks?

A drop of 20% from its peak.

What lesson did the Fed learn from the Great Financial Crisis?

Do not be timid about spending.

What does the potential GDP curve indicate?

The maximum output an economy can produce without triggering inflation.

What are economic shocks?

Unexpected events such as financial crises, political events, or pandemics that affect economic stability.

What is the definition of inflation?

The general increase in prices and fall in purchasing power.

What three types of unemployment are identified?

Frictional, structural, and cyclical unemployment.

What is Okun's Law?

Indicates the relationship between unemployment and GDP; typically, a 1% increase in unemployment results in a 2% decrease in GDP.

What characterizes durable goods?

Goods that last for a long time, often used for production of other goods.

What are nondurable consumer goods?

Goods that are consumed or are only usable for a short period of time, typically lasting less than a year.

What is the relationship between sales of durable and nondurable goods during a downturn?

Sales of durable goods decline significantly while nondurable goods decline modestly.

How is the labor force defined?

The sum total of employed and unemployed individuals actively seeking work.

What demographic factors have influenced labor participation rates over the last 40 years?

The entry and exit of baby boomers and women in the labor force.

Which groups bear the unequal burden of layoffs?

Unskilled, younger, less educated workers, particularly among blacks and Hispanics.

What are the collateral consequences of unemployment?

Increased mental illness, crime, violence, and political tensions.

What is inflation?

A situation where prices continue to rise over a period of time.

What causes stagflation?

The combination of stagnant economic growth, high unemployment, and high inflation.

What is the Consumer Price Index (CPI)?

A monthly measure of the average change in prices over time for a basket of consumer goods.

What is a Cost of Living Adjustment (COLA)?

An adjustment made to income to maintain purchasing power despite inflation.

What are capital goods?

Goods that are used in the production of other goods and services, often with a long lifespan.

What curve shifts during cost-push inflation?

The supply curve shifts left.

What triggers demand-pull inflation?

Increased consumer demand for goods and services.

What is the rule of 70 in economic growth?

The estimated number of years required to double the value of an investment, calculated as 70 divided by the annual growth rate.

Define economies of scale.

The cost advantages that enterprises obtain due to scale of operation, with cost per unit of output generally decreasing with increasing scale.

What do diseconomies of scale refer to?

Increases in per-unit costs as a company grows too large or complex.

What must GDP equal in terms of its components?

GDP = Consumption + Investment + Government Spending + Net Exports.

What are the four components included in calculating GDP?

Consumption, gross private investment, government spending, and net exports.

What are the two main methods for calculating GDP?

The Expenditure Approach and the Income Approach.

What is a major limitation of GDP as a measure of economic health?

GDP does not account for income distribution or environmental costs.

What is the primary reason why financial transactions are excluded from GDP calculation?

Financial transactions do not reflect the production of new goods and services.

How are imports treated in GDP calculations?

Imports are excluded because they are produced outside the country.

What impact do government surpluses have on GDP growth?

Growth slows because all taxes are not being reinvested into the economy.

What is one of the biggest categories of expenses that has seen significant price growth?

Medical care.

What is the fundamental relationship between inflation and purchasing power?

As inflation increases, the purchasing power of money decreases.

What is hyperinflation?

An extremely high and typically accelerating inflation rate, often exceeding 50% per month.

What distinguishes nominal GDP from real GDP?

Real GDP is adjusted for inflation, while nominal GDP is not.

What happens to the supply curve during demand-pull inflation?

The demand curve shifts to the right, indicating increased demand for goods and services.

What is meant by the term 'unexpected shocks' in economics?

Sudden and unexpected events that significantly affect economic conditions.

What are the 6 factors that determine GDP growth?

Land, labor, capital, entrepreneurship, total spending, and efficiency.

What are intangible goods?

Non-physical products, such as services like research and development, that contribute to economic productivity.

What overall effect did COVID-19 have on price levels?

A combination of demand-pull and cost-push inflation due to supply chain disruptions and increased demand.

What does it mean when economists say, 'Be Real'?

Consider the real value of GDP, adjusted for inflation.

Why is the Core CPI significant?

It removes volatile items like food and energy to provide a more stable measure of inflation.

What signifies a 'dismal science' according to Thomas Malthus?

The prediction that population growth will exceed resources, leading to negative social outcomes.

What is a capital good?

Goods used to produce other goods and have a long lifespan.

How do employers typically adjust their workforce during downturns?

By laying off unskilled and seasonal workers disproportionately.

What is the focus of economic growth measurement?

The increase in a country's output of goods and services over time.

What does it mean when employment is described as cyclical?

Unemployment resulting from economic downturns or recessions.

How does the government impact GDP through deficit spending?

It can lead to faster growth as more money is injected into the economy.

Explain the relationship between investment in research and development and GDP.

Investment in R&D is considered an intangible good that fosters economic growth.

What is the definition of structural unemployment?

Unemployment that arises when there is a mismatch between the skills of workers and the needs of employers.

What factors may increase labor force participation rates?

Involvement of more women and younger generations entering the workforce.