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Economics Chap. 6
An Overview of Macroeconomics, Economic growth, business cycles, unemployment and inflation
48
Economics
Undergraduate 2
11/19/2008

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Term
Long-run growth framework focuses on....
Definition
supply
Term
short-run business-cycle framework focuses on......
Definition
demand
Term

Growth is measured by..

Definition
the change in real gross domestic product (GDP) and by the change in per capita real GDP
Term
Per capita real GDP is (equation)
Definition

GDP

total population

Term
Secular trend growth rate of the economy is
Definition
2.5 to 3.5 %
Term
Fluctuations of real output around the secular trend growth rate are called
Definition
business cycles
Term
Phases of business cycles
Definition
  • Peak
  • Trough
  • Upturn
  • Downturn
Term
Equation of unemployment
Definition

# of unemployed

Labor Force

Term

Unemployment _______ during a recession; and ______ during an expansion

Definition
rises; falls
Term
Target rate of unemployment is.....
Definition
the lowest sustainable rate of unemployment possible under existing institutions
Term
The lower the target rate of unemployment
Definition
the higher an economy's potential output
Term
The microeconomic approach to unemployment
Definition
subdivides unemployment into categories and looks at those individual components
Term
Real output (equation)
Definition

nominal output

price index

Term
Inflation (definition)
Definition
a continual rise in the price level
Term
The CPI, the PPI, and the GDP deflator are
Definition
all price indexes used to measure inflation
Term
GDP Deflator
Definition
measures inflation of all goods produced in an economy
Term
CPI
Definition
measures infaltion faced by consumers
Term
PPI
Definition
measures infaltion faced by producers
Term
Inflation redistributes income from people who don't raise their prices to....
Definition
people who do raise their prices
Term
Inflation also reduces
Definition
the information that prices convey
Term
Expectations of inflation can
Definition
cause inflation to continue
Term
The range of growht rates across contries
Definition
is wide
Term

During a recessionary phase of the business cycle, the macroeconomy is

Definition
in between the peak and trough
Term
Frictional unemployment is...
Definition
unemployment caused by new entrants into the job marked and people quitting a job just long enough to look for and find another one
Term
Edward has quit his job because he has become dissatisfied with the work that he has been asked to do. Because he has highly marketable skills, he expects to find a new job soon.. What type of unemployment is Edward?
Definition
Frictional Unemployment
Term
When the economy operates beyond potential output
Definition
its operating above potential output
Term
When output is at its potential
Definition
unemployment and capacity utilization rates are equal to the target levels
Term
Real output is best defined as...
Definition
total amount of goods and services produced adjusted for changes in the price level
Term
real GDP
Definition
the market value of final goods and services produced in an economy, stated in the prices of a given year
Term
Main sources of economic growth
Definition
  • Technological change and development
  • capital accumulation
  • increase in the availability of resources
  • growth- compatible institutions
  • entrepreneurship
Term
Benefits of economic growth
Definition
  • Allows everyone in society, on average, to have more
  • Allows governments to avoid hard distributional questions
  • Generates jobs
Term
Cost associated with rapid economic growth
Definition
  • pollution
  • resource exhaustion
  • destribution of natural habitat
Term

Economic growth raises

Definition
standard living
Term
two major economic problems associated with a downturn are......
Definition
cyclical unemployment and slow economic growth
Term

What is the major economic problem associated with a booming economy??

Definition
inflation; the greater and faster the spending rises, the greater and faster the economy expands and the greater the inflation rate
Term
Structural unemployment is measured by
Definition
institutional structure of an economy
Term
Okun's Rule of Thumb
Definition
+1 percentage point change in unemployment ---> -2 percent changes in output
Term

Cyclical Unemployment

Definition
unemployment resulting from fluctuations in economic activity
Term
Structual Unemployment (definition)
Definition

unemployment caused by the institutional structure of an economy or by economic restructuring making some skills obsolete

Term
Calculate CPI
Definition

CPI= price of market basket (in any year)   X 100

       price of market basket (in base year)

 

Then subtract by 100         

Term
Nominal Output (definition)
Definition
the total amount of goods and services produced measured at current prices
Term

Nominal Output Rise (equation)

 

*if prices rose from 8 trillion to 10 trillion....

Definition

nominal output= total output (rises/decreases)

           base total output

 

10-8= .25 or 25%

   8

Term
Real Output
Definition
tht total amount of goods ans services produced, adjusted for price-level changes
Term
Real Output (equation)
Definition

nominal output / price index percent  X 100

 

 

Term
When inflation occurs nominal ouput______ than real output
Definition
increases more
Term
Classical economists believed that ________ are responsible for their own job
Definition
individuals
Term
Labor Force Participation Rate (equation)
Definition

labor force / # of people able to work X 100

 

labor force

# of people able to work

Term
Explain how the upturn during a business cycle differs from economic growth
Definition

The expansionary phase (or upturn) of a business cycle does not last

            long; since 1948, they have only lasted, on average, 57 months whereas economic growth lasts (and is measured) over several decades
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