Business Cycle Flashcards
Business Cycle
The recurring pattern of expansion and contraction in the economy, characterized by increasing and decreasing economic activity and GDP growth
What does GDP stand for?
Gross Domestic Product
Gross Domestic Product
The total value of all goods and services produced within a country in a given period, serving as a measure of the country’s economic performance
Unemployment Rate
The percentage of the labor force that is unemployed and actively seeking employment, indicating the level of joblessness in an economy
Inflation
The general increase in prices of goods and services over time, leading to a decrease in the purchasing power of money
Expansionary (Recovery)
A phase of the business cycle characterized by increasing economic activity and GDP growth, indicating a recovery from a previous contractionary phase
Peak
The highest point of economic activity in a business Cycle, representing the end of an expansionary phase and the beginning of a contractionary phase
Contractionary (recession)
A phase of the business cycle characterized by decreasing economic activity and GDP contraction, leading to a decline in overall economic output
Trough
The lowest point of economic activity in a business cycle, marking the end of a contractionary phase and the beginning of an expansionary phase
Economic indicators
Statistics used to measure and analyze the performance of an economy. There are 3 we have considered in this class
Frictional unemployment
Unemployment that occurs when people are transitioning between jobs or entering the workforce for the first time
Structural unemployment
Unemployment that occurs due to a mismatch between the skills of workers and the available job opportunities, often caused by technological advancements or changes in the economy
Cyclical unemployment
Unemployment that occurs as a result of the ups and downs of the business
Demand-pull inflation
Inflation that occurs when demand exceeds the available supply of goods and services, leading to an increase in overall prices
Costs of Inflation
Negative consequences of inflation, such as reduced purchasing power, uncertainty in the economy, and potential distortions in resource allocation
Consumption spending
Spending by households on goods and services, reflecting the demand side of the economy and contributing to overall economic growth
Investment spending
Spending by businesses on capital goods and equipment, aimed at increasing production capacity and stimulating economic growth
Per Capita
Per person or per Capita basis, often used to measure economic indicators on an individual level to account for population differences
Poverty line
The income level below which income is insufficient to support a family or household
What are the main sources of the government’s income?
Income, sales, corporate
What does the government spend income on?
Healthcare, public services, police
During expansionary fiscal policy what happens to tax rates?
It goes down
During expansionary fiscal policy what happens to government spending?
It goes up
What is the Multiplier Effect?
The less people save the greater
During contractionary fiscal policy what happens to tax rates?
They increase
During contractionary fiscal policy what happens to government spending?
They decrease
What is the Crowding Out Effect?
Using resources for government use instead of private use
What is the Federal Reserve System? (AKA ‘The Fed’)
A central banking system that tackles money supply by setting interest rates and regulating financial markets
What are people and businesses incentivized to do when interest rates are high?
Leave their money in the bank
What are people and businesses incentivized to do when interest rates are low?
Money is cheaper so we want to borrow more
How are interest rates and the money supply linked?
They both lead to inflation
What are Open Market Operations?
Where you buy government bonds and it deposits in the bank
What is Expansionary Monetary Policy?
Where money supply INCREASES
What is Contractionary Monetary Policy?
Where money supply REDUCES
What is the Discount Rate?
Interest rate central banks charge banks
What is the Reserve Requirement?
Where the more money banks need in reserve, the less money there is in the economy
TRUE or FALSE: All people without a job are considered unemployed
False
What does the unemployment rate measure?
The percentage of US labor force that’s unemployed
How is the unemployment rate calculated?
the number of area residents without a job and looking for work divided by the total number of area residents in the labor force.
What are the three types of unemployment?
Frictional, structural, cyclical
The Consumer Price Index
The most widely reported measure of inflation
What does the Consumer Price Index measure?
The prices of fixed sets to same sets in the last month/year
Inflation is caused by an increase in what 2 things?
Costs and spending
Explain the relationship of a business cycle’s “short-run” vs “long-run”.
Short run focuses on immediate economic changes, while long run looks at sustained economic trends.
What are the three economic indicators?
Gross Domestic Product, Unemployment Rate, Inflation Rate
Fiscal Policy
The use of government spending and taxation to influence the economy
Monetary Policy
How a central bank controls the amount of money and interest rates to help the economy
What is ‘The Fed’?
The Federal Reserve
Bonds
Loans you give to companies/governments where they pay you back with interest
What is the Federal minimum wage?
$7.25 an hour
What is Portland’s minimum wage?
$15.45 per hour
