question
Expansion/recovery
answer
Real output in the economy is increasing and the unemployment rate is declining. As the economic expansion continues, inflation may begin to accelerate
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Peak
answer
Real output, GDP, is at its highest point of the business cycle
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Recession
answer
Real output in the economy is decreasing, and the unemployment rate is rising. As the contraction continues, inflationary pressures subside. If the recession continues long enough, prices may actually start to fall (deflation)
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Trough
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The lowest point of real GDP reached during the business cycle. If the trough is particulary deep, it may be called a depression. A depression is an economic situation where the level of output falls to especially low levels and unemployment climbs to very high levels relative to the historical average
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Frictional unemployment
answer
People who are temporarily between jobs. They may have quit one job to find another, or they could be trying to find the best opportunity after graduating from high school or college
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Cyclical unemployment
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People who are not working because firms do not need their labor due to a lack of demand or a downturn in the business cycle
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Structural unemployment
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Mismatches between job seekers and job openings. Unemployed people who lack skills or do not have sufficient education
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Actual rate of unemployment
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Sum of all three types of unemployment
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Index number
answer
(current-year cost/base-year cost) x 100
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Real GDP
answer
(nominal GDP x 100)/price index
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Output growth
answer
[(year 2 - year 1)/year 1] x 100
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Real GDP per capita
answer
year 1 real GDP/population in year 1
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Price change
answer
(change in CPI/beginning CPI) x 100
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CPI
answer
(weighted cost of base-period items in current year prices/weighted cost of base-period items in base year prices) x 100
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Unemployment rate
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(number of unemployed/labor force) x 100
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Labor force participation rate (LFPR)
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(number in labor force/adult population) x 100
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Price stability
answer
When the average level of prices in the economy is neither increasing or decreasing
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Economic growth
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When the economy produces increasing amounts of goods and services over the long term
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Expenditure Approach
answer
Consumer spending + Investments + Government spending + Net Exports
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Income Approach
answer
Income + Wages + Rent + Profits
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