Textbook Notes (363,137)
Canada (158,217)
Economics (923)
ECN 204 (281)
Amy Peng (21)
Chapter 7

Chapter 7

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Ryerson University
ECN 204
Amy Peng

Chapter 7 The Business Cycle (fluctuations) • Business cycle: Recurring increase and decrease in the level of economic activity over periods of years. o Peak: A phase in the business cycle during which the economy is at full employment and the level of real output is at or very close to the economy’s capacity. (price level likely to rise) o Recession: A period of decline in total output, income, and employment. (declines in real GDP and increase in unemployment) o Trough: the point during a recession or depression when output and employment reach their lowest levels. o Expansion: The phase of the business cycle during which output and employment rise toward full capacity (inflation) Boom: A particularly strong and protracted expansion Unemployment • Unemployment: A failure of the economy to fully employ it’s labor force • Measurement of Unemployment o Labour force: Persons 15 years of age and older who are not in institutions and who are employed, or are unemployed and seeking work o Unemployment rate: the percentage of labour force that is unemployed at any time OR www.notesolution.com • Types of unemployment o Frictional unemployment: A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs o Structural unemployment: Unemployment of workers whose skills are not demanded by employers, who lack sufficient skills to obtain employment, or who cannot easily move to locations where jobs are available o Cyclical unemployment: Unemployment caused by a decline in total spending (or by insufficient aggregate demand) Recession Positive Cyclical Unemployment (U > U*) Expansion Negative Cyclical Unemployment (U < U*) o Seasonal unemployment: Unemployed caused by seasonal factors. • Natural Rate of Unemployment (NRU U*): the unemployment rate that occurs when no cyclical unemployment exists and the economy is achieving its potential output (potential GDP) o The full-employment rate of unemployment o Full employment occurs where there is no presence of cyclical unemployment. Frictional structural and seasonal unemployment are largely unavoidable. • Potential GDP (Y*): the real output an economy can produce when it fully employs available resources. • GDP(output) gap: the amount by which actual GDP falls below potential GDP www.notesolution.com o Recessionary gap (Y < Y*) Capital and labor resources are not fully utilized Output is falling below
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