Study Guide for Ch9 of "Macroeconomics" Textbook by McConnell, Brue, and Flynn 19 edition

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Northeastern University
ECON 1115
Peter Simon

Study Guide for Ch9 and test 2 Business Cycle, unemployment, and inflation 1. Business Cycle (BC): fluctuation of RGDP overtime, two key components are inflation and deflation (recession). 1) 2) Everything above the line is inflation; everything below the line is deflation or recession. 3) As long as the economy starts to grow, the recession is over; The only way to get out of recession is increase spending 2. Unemployment: the measurement of unemployment is ¿of unemployed UR( unemployment rate) = Labor Force *100 (currently UR is 7%) 1) Three rules to decide a person is in labor force or not:16 years and older; non-institutionalized: not in hospital, military, jail; has been looking for a job for at least past 4 weeks 2) Three types of unemployment: Frictional, structural, and cyclical unemployment. (need know what they are and the difference between them) 3) Anywhere on the straight of the BC graph, the cyclical unemployment is 0, since the line is full employment. 4) Shortcomings of unemployment: e.g. just a simple national level average, and does not take into account for the discouraged workers( who is tired of finding a job, is not in labor force anymore), location difference, age, gender, race, education background, and so force. 5) MUST KNOW: a slightly decrease (from 7% to 6.8%)in UR is not necessary a good thing, it could be because the increase in discouraged workers. ALSO, in the equation of UR, the same amount change in both denominator and numerators, has greater effect on numerator, so the total effect will follow the change of numerator. 3. Inflation: two definitions, increase in general price level; or decrease in purchasing power of the currency (dollars) 1) Measurement of inflation: CPI −CPI current yeabase ∗100 Inflation Rate= CPIbase year
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