Campbell R. McConnell,
University of Nebraska, Lincoln
Stanley L. Brue,
Pacific Lutheran University
Thomas P. Barbiero,
Ryerson University
| Anticipated inflation | Increases in the price level (inflation) that occur at the expected rate.
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| Business cycle | Recurring increases and decreases in the level of economic activity over periods of years. Consists of peak, recession, trough, and recovery phases.
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| Cost-of-living adjustment (COLA) | An automatic increase in the incomes (wages) of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.
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| Cost-push inflation | Increases in the price level (inflation) resulting from an increase in resource costs (for example, higher wage rates and raw material prices) and hence in per unit production costs; inflation caused by reductions in aggregate supply.
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| Cyclical unemployment | A type of unemployment caused by insufficient total spending (or by insufficient aggregate demand).
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| Deflation | A decline in the economy's price level.
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| Demand-pull inflation | 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.
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| Discouraged workers | People who have left the labour force because they have not been able to find employment.
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| Economic growth | (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 either in real output (gross domestic product) or in real output per capita.
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| Frictional unemployment | A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
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| GDP gap | The amount by which actual gross domestic product falls below potential gross domestic product.
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| Hyperinflation | A very rapid rise in the price level.
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| Inflation | A rise in the general level of prices in an economy.
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| Labour force | Persons 15 years of age and older who are not in institutions and who are employed or are unemployed (and seeking work).
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| Natural rate of unemployment | The full-employment unemployment rate; the unemployment rate that occurs when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation.
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| Nominal income | The number of dollars received by an individual or group for its resources during some period of time.
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| Nominal interest rate | The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.
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| Okun's Law | The generalization that any one 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.
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| 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.
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| Potential output | The real output (GDP) an economy can produce when it fully employs its available resources.
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| Productivity | A measure of average output or real output per unit of input. For example, the productivity of labour may be determined by dividing real output by hours of work.
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| Real income | The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.
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| Real interest rate | The interest rate expressed in dollars of constant value (adjusted for inflation); and equal to the nominal interest rate less the expected rate of inflation.
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| Recession | A period of at least two quarters of declining real GDP, accompanied by lower real income and higher unemployment.
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| Recovery | The expansion phase of the business cycle, during which output and employment rise toward full employment.
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| Rule of 70 | A method for determining the number of years it will take for some measure to double, given its annual percentage increase by dividing that percentage increase into 70. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.
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| Structural unemployment | 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.
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| Trough | A recession or depression, when output and employment reach their lowest levels.
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| Unanticipated inflation | Increases in the price level (inflation) that occur at a rate greater than expected.
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| Unemployment rate | The percentage of the labour force unemployed at any time.
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2002 McGraw-Hill Higher Education