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(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita
economic growth
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A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation
rule of 70
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A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work
productivity
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Recurring increases and decreases in the level of economic activity over period of years; consists of peak, recession, trough, and recovery phases
business cycle
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point where business activity has reached a temporary maximum. The economy is at full employment and the level of real output is at or very close to the economy's capacity. The price level is likely to rise during this phase.
peak
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A period of declining real GDP, accompanied by lower real income and higher unemployment
recession
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Where the output and employment "bottom out" at their lowest levels. This phase may be either short-lived or quite long.
trough
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Expansion phase, where the output and employment rise toward full employment. As recovery intensifies, the price level may begin to rise before full employment and full-capacity production return.
recovery
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Person 16 years of age and older who are not in institutions and who are employed or are unemployed (and seeking work).
labor force
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The percentage of the labor force unemployed at any time
unemployment rate
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Employees who have left the labor force because they have not been able to find employment
discouraged workers
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A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs ; unemployed workers between jobs.
frictional unemployment
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Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available
structural unemployment
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A type of unemployment cause by insufficient total spending (or by insufficient aggregate demand).
cyclical unemployment
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The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 4 and 5 percent in the United States because some frictional and structural unemployment is unavoidable.
full-employment rate of unemployment
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The full employment unemployment rate; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation
natural rate of unemployment (NRU)
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The real output (GDP) an economy can produce when it fully employs its available resources.
potential output
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The amount by which actual gross domestic product falls below potential output
GDP gap
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The generalization that any 1-percentage-point rise in the unemployment rate above the full employment unemployment rate will increase the GDP gap by 2 percent of the potential output (GDP) of the economy
Okun's law
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A rise in the general level of prices in an economy
inflation
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Increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand.
demand-pull inflation
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Increases in the price level (inflation) resulting from an increase in resource costs (for example, raw-material prices) and hence in per-unit production costs; inflation cause by reductions in aggregate supply
cost-push inflation
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The average production cost of a particular level of output; total input cost divided by units of output
per-unit production costs
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The number of dollars received by an individual or group for its resources during some period of time
nominal income
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The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation
real income
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Increases in the price level (inflation) that occur at the expected rate
anticipated inflation
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Increases in the price level (inflation) at a rate greater than expected.
unanticipated inflation
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An automatic increase in the incomes (wages) or workers when inflation occurs; guaranteed by a collective bargaining conract between firms and workers.
cost-of-living adjustments (COLAs)
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The interest rate expressed in dollars f constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation
real interest rate
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The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation
nominal interest rate
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A decline in the economy's price level.
deflation
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A very rapid rise in the price level; an extremely high rate of inflation
hyperinflation
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