B5-M1 Flashcards
Trough
- low point of economic activity, no positive indicators for the future
- unused productive capacity & unwillingness to risk investments
Increase in aggregate demand causes:
- increase in price level
- increase in GDP
Recession
- negative real economic growth, decline in national output
- potential output> actual output
- Falling GDP: decrease in supply or demand
Peak
- GDP is @ highest point & unemployment is @ lowest point
- high point of economic activity
Expansionary fiscal policy
-Increasing government purchases & decreasing taxes
-increase in demand & GDP
-Decrease in unemployment
(Contradictory= increase in taxes)
Expansionary monetary policy
-increase in money supply
Nominal GDP
- unadjusted
- measures value of all final goods & services in prices @time of production (in current prices)
Real GDP
- adjusted
- accounts for changes in price level (removes effects of inflation)
- measures value of final goods & services in constant prices
Business Cycle
- Expansionary
- Peak
- Contractionary
- Trough
- Recovery
Business Cycle
- Expansionary
- Peak
- Contractionary
- Trough
- Recovery
- refer to overall economic activity, not just to one firm
- variation attributed to duration and intensity
Shift right (increase) in Supply
- Output increases, prices fall
- Increase in GDP
Increase in wages
- decrease in GDP
- increase in prices
Increase in wages
- decrease in GDP (increase in input costs)
- increase in prices
Real GDP per capita
- Real GDP divided by population
- used to compare standards of living across countries and time
- adjusts for differences in population
Increase in conversion value compared to the dollar
- higher exchange rate, lower value
- depreciation of the currency
Change in real GDP
Multiplier * Change in spending
Multiplier effect
1/ (1-MPC)
MPC= Marginal propensity to consume
MPS= (1-MPC) Marginal propensity to save
