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Word list ECT: Chapter 22Recession: a period in which the economy is growing at a rate significantly below
normal.
The Great Depression:
Expansion Opposite of the recession. A period in which the economy is growing at
a rate significantly above normal.
Boom a particularly long and protracted expansion.
Output gap The difference between the economy’s potentials output and its actual
output at a point in time. (Y*- Y) (the difference between potential
output and actual output)
Potential output/ The amount of output (real GDP, Y) that an economy can produce when
potential GDP/ full it is using its resources, such as capital and labour, at normal rates.
employment output
(Y*)
Recessionary gap A positive output gap, which occurs when potential output exceeds the
actual output (real GDP). (Y* > Y)
Expansionary gap A negative output gap, which occurs when actual output (real GDP) is
higher than potential output (Y>Y*)
- Expansions and recessions are not limited to a few industries or regions but are felt
throughout the economy. Large fluctuations may have a global impact.
- Unemployment is a key indicator of short term fluctuations
o Rises sharply during recessions and recovers during expansions.
o Cyclical employment: unemployment that is associated with recessions
- Potential output: is not fixed grows over time
o Short term fluctuations: output does not always equals potential output.
- There are three broad types of unemployment:
o 1. Frictional unemployment
o 2. Structural employment
o 3. Cyclical employment
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