1. Ch 14, 1-2
Economic Stability

2. Chapter 14 Economic Stability Section 1 p. Terms:
Business cycle
largely systematic ups and downs of real GDP.
Interrupts economic growth
Note: an economic law

3. Business fluctuations
the rise and fall of real GDP over time and in a nonsystematic manner.
Note: not as predictable as the business cycle.

4. recession
A period during which real GDP declines for two or more quarters in a row.
Or six consecutive months.
Begins when economy reaches a…..

5. peak the point where real GDP stops going up.
A recession ends when the economy reaches a…..
Trough
the turnaround point where real GDP stops going down.

6. Expansion a period of recovery from a recession.
Expansion continues until the economy reaches a new peak.

7. Trend line
the economy departs from and then returns to its trend line.
Up and down
The average direction of growth, with the peaks and troughs as the ups and downs.

8. Causes of the Business Cycle
Capital expenditures:
Businesses adjust their investments in capital goods
Inventory adjustments:
Reduced at first signs of a decline in the market
Innovation and imitation:
Competition reduces business for original businesses
Monetary factors:
Credit and loan policies of the Federal Reserve System

9. Depression a state of the economy with
large numbers of the people out of work
Acute shortages
Excess capacity in manufacturing plants

10. Depression scrip
during the Great Depression of the 1930s, various levels of government printed their own “currency”.
Temporarily used to pay…..
Teachers
Firefighters
Police officers
Other municipal employees

11. Econometric model
a macroeconomic formula that uses algebraic equations to describe how the economy behaves.
GDP = C+I+G+(X-M)
GDP = C+I+G+(F-S)
C = A (DI)
A variation that assumes that people spend .95 of their disposable income.
GDP = A+.95(DI)+I+G+(F-S)

12. Index of leading indicators
a monthly statistical series
Usually turns down before real GDP turns down.
Usually turns up before real GDP turns up.
Used to determine future economic activity.
Note:
Average workweek (manufacturing)
Initial unemployment claims
New orders for consumer goods
Vendor performance
Plant and equipment orders
Building permits
Change in unfilled durable orders
Sensitive material prices
Stock prices (S&P 500)
Real M2
Index of consumer expectations

13. Section 2: Unemployed people available for work who cannot find it.
Are actively looking for a job during the past month
Worked less than one hour for pay, in the past survey week.
Worked in a family business less than 15 hours in a week with no pay.

14. Unemployment rate the number of individuals not working
Divided by the total number of persons in the civilian work force
Note: currently at 5.5
California at 6.7%

15. Frictional unemployment
caused by workers who are between jobs for one reason or another.
Short-term
Will suffer little economic hardship while unemployed
Usually leaving one job for another.
Others have lost jobs, but have a good chance of getting another.

16. Structural unemployment
caused by
Changes in technology
Changes in consumer taste

17. Cyclical unemployment
caused by the business cycle
Gets most intense at the trough

18. Seasonal unemployment
changes in weather causes change in demand for a product
Those workers will work or not depending on the change.

19. Technological unemployment
workers with less skills, talent, education replaced by machines, automated.
Automation
Production with mechanical or other processes that reduces need for human labor.

20. Assessments: Section 1, Checking for Understanding
1 Explain the difference between a business cycle and a business fluctuation.
Business cycles are systematic increases and decreases in real GDP.
Business fluctuations are unsystematic increases or decreases in real GDP

21. 3 Identify the two main phases of a business cycle
Recession
Expansion

22. 4 Explain how the Great Depression compared to other recessionary periods?
The Great Depression was more severe than the other recessionary periods.
It was the worst economic decline in US history.

23. 5 List five causes of the business cycle.
Capital expenditures
Inventory adjustments
Innovation and imitation
Monetary factors
External shocks

24. Assessments: Section 2, Checking for Understanding
1 Why is structural unemployment a more difficult problem for the economy and for individual workers than other types of unemployment?
Causes long-term unemployment,
Unemployed must learn new skills

25. 3 Describe how the government collects monthly data on employment.
The Census Bureau surveys and turns data over to the Bureau of Labor Statistics for analysis

26. 4 Differentiate between the five major kinds of unemployment
Frictional
Structural
Cyclical
Seasonal
Technological

27. Image, p. 376 What does a trough indicate?
The turnaround point where real GDP stops going down.

28. Image, p. 377
Questions
1 Which functions of money did the gas owned by Gazprom perform?
Gas acted as payment for royalties
2 Are there any barter transactions that take place in the American economy? Why would anyone prefer barter to money transactions?
Bartering is rarely done in the American economy
Some cultures such as Native-Americans still use the system
People prefer to barter when they lose faith in the money supply

29. Image, p. 379 How do economists use this index to predict recessions?
By measuring the beginning and the end of a business cycle

30. Image, p. 383
How would you characterize the unemployment rate during the period from 1990 to 2002?
It rose dramatically around 1993, then came down slowly, and started to rise in 2001

31. Image, p. 386 What causes technological unemployment?
Machines that can do the jobs of workers with insufficient skills, talents, or education

32. Image, p. 387
Other than technology, in what fields are many of the fastest-growing jobs concentrated?
Medical field
Legal field