All Flashcards
Analyze a business cycle graph. What characterizes the peak?
High economic activity, low unemployment, and potential inflationary pressures.
Analyze a business cycle graph. What characterizes the trough?
Low economic activity, high unemployment, and potentially deflationary pressures.
Analyze a business cycle graph. What happens to GDP during a contraction?
GDP decreases as economic activity slows down.
Analyze a business cycle graph. What happens to GDP during an expansion?
GDP increases as economic activity accelerates.
On a graph of the business cycle, how is a recession represented?
A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible as downward slope.
If a graph shows a prolonged period of low GDP growth, what phase of the business cycle is it likely depicting?
Likely depicting a trough or a slow recovery phase following a recession.
What does a steep upward slope on a business cycle graph indicate?
Indicates a rapid expansion phase with strong economic growth.
What does a flat line on a business cycle graph suggest?
Suggests a period of stagnation or very little economic growth.
How are unemployment rates typically represented on a business cycle graph?
Unemployment rates are often inversely related to GDP; they rise during contractions and fall during expansions.
What does a graph showing a shift in aggregate demand tell you about the economy?
A shift in aggregate demand can indicate changes in consumer confidence, government policies, or external factors affecting the economy.
What is the impact of increased government spending on GDP?
Generally increases GDP, especially during a recession, by boosting aggregate demand.
What is the impact of lower interest rates on investment spending?
Encourages investment spending, as borrowing becomes cheaper.
How does a tax cut affect consumer spending?
Tends to increase consumer spending by increasing disposable income.
What is the impact of trade tariffs on net exports?
Can decrease net exports if other countries retaliate with their own tariffs.
How does expansionary monetary policy affect inflation?
Can lead to higher inflation if the money supply grows too quickly.
How does increased regulation affect business investment?
Can decrease business investment due to increased costs and compliance burdens.
What is the effect of subsidies on domestic industries?
Subsidies can help domestic industries compete in global markets but may also lead to inefficiencies.
How does a minimum wage increase affect unemployment?
May lead to increased unemployment if businesses reduce staff to offset higher labor costs.
What is the impact of quantitative easing on the money supply?
Increases the money supply by injecting liquidity into financial markets.
How do unemployment benefits affect the labor force participation rate?
May decrease the labor force participation rate if they reduce the incentive to seek employment.
What is GDP?
Total value of all goods/services produced within a country's borders in a specific time period.
What is Nominal GDP?
GDP measured in current prices; doesn’t adjust for inflation.
What is Real GDP?
GDP adjusted for inflation; gives a more accurate picture of economic growth.
What is Inflation?
General increase in prices over time.
What is the CPI?
Consumer Price Index; tracks the price of a “basket” of goods and services.
What is the labor force?
All people who are employed or actively seeking employment.
Define frictional unemployment.
Temporary unemployment when people are between jobs or entering the labor force.
Define structural unemployment.
Unemployment due to a mismatch between workers' skills and employers' needs.
Define cyclical unemployment.
Unemployment caused by a downturn in the business cycle (recession).
What is the Circular Flow Model?
A simplified representation of the economy, showing the flow of money and resources between households and firms.