Module 2
Jan 2015
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The alternation between economics
downturns and upturns in the macroeconomy
Depression-A deep and prolonged downturn
Recession-A shallower and shorter downturn;
period in which output and employment are
falling.
Expansions-Periods in which output and
employment are rising. AKA as Recoveries
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Employment is the total number of people
working for pay
Unemployment is the total number of people who
are actively looking for work
Labor force is the total employed and
unemployed
(Please note – people who do not work and are
not actively seeking employment are not part of
the labor force.)
The unemployment rate – the % of the labor force
who are unemployed is a good indicator of what
conditions are like in the job market
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Output – the quantity of goods and services
produced
Aggregate output – the economy’s total
production of goods and services for a given
time period
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Inflation – the rising overall price level, the
price of a can of soda when I was 10 was .25,
now I pay .75
Deflation – the falling overall price level, the
price of gas last summer was over 4.00,
yesterday I paid 2.35
Price Stability – when the aggregate price
level is changing only slowwwwwly.
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We can afford many conveniences today as
compared to the past because of economic
growth, or the increase in the maximum
amount of goods and services an economy
can produce.
Models are simplified versions of reality used
to study economics
“Other things equal” assumption – means that
all other factors remain unchanged and
economists can focus on one change at a
time
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Define depression and recession and explain
the difference between the two concepts.
During the expansion phase of a business
cycle, which of the following is likely to
increase?
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A. the unemployment rate
B. The price level
C. economic growth rates
D. the labor force
E. wages
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Imagine a firm that manufactures textiles
(pants and shirts). List the four categories of
resources, and for each category, give an
example of a specific resource that the firm
might use to manufacture textiles.
Describe some of the opportunity costs of the
following choices:
◦ A. attend college instead of taking a job
◦ B. watch a movie instead of studying for an exam
◦ C. ride the bus instead of driving your car
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Use the concept of opportunity cost to
explain the following:
◦ A. There are more parks in suburban areas than
urban areas
◦ B. More people choose to pack their own lunch
when the economy is slow and wages are down