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BEC - Economic Concepts > Changes in Economic and Business Cycles > Flashcards

Changes in Economic and Business Cycles Flashcards

1
Q

Business Cycles

A

refer to the rise and fall of economic activity relative to its long-term growth trend

characterized by fluctuations

part of macroeconomics

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2
Q

Macroeconomics

A

study of the economy as a whole

examines the determinants of national income, unemployment, inflation, and how monetary and fiscal polices affect economic activity

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3
Q

Gross Domestic Product (GDP)

A

most common measure of the economic activity or output of an economy

Total MV of all final goods and services produced within the borders of a nation in a particular period

EXCLUDES final goods and services that have been resold

INCLUDES foreign owned factory output, but EXCLUDES US-owned factories operating abroad

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4
Q

Nominal GDP

A

NOT adjusted for inflation

measures the value of all final goods and services in at current prices

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5
Q

Real GDP

A

measures the value of all final goods and services in constant prices. Adjusted for changes in price level such as inflation

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6
Q

Price Index

A

used to calculate real GDP

GDP deflator

Real GDP = (Nominal GDP/GDP Deflator) X 100

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7
Q

Calculate Change in Real GDP

A

(Current year GDP/Past Year GDP) - 1

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8
Q

Real GDP per Capita

A

real GDP divided by the population

used to compare standard of living or economic growth

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9
Q

Economic growth

A

increase in real GDP per capita over time

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10
Q

Expansionary Phase

A

rising economic activity and growth

firms likely to increase workforce, and price of goods and services to rise

Increase in:
GDP
Profits
Prices

Decrease in:
unemployment

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11
Q

Peak

A

high point of economic activity

marks end of expansionary phase

firms face capacity constraints and input shortages

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12
Q

Contractionary Phase

A

falling economic activity and growth following a peak

Increase in:
unemployment

Decrease in :
GDP
Profits

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13
Q

Trough

A

low point of economic activity

firms experience excess production, reducing workforces, and cutting costs

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14
Q

Recovery Phase

A

follows a trough

economic activity begins to increase and return to its long-term growth trend

firms profits begin to stabilizes and demand begins to rise

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15
Q

Recession

A

economy experiences negative real economic growth

two consecutive quarters of falling national output

Increase in:
unemployment

Decrease in:
GDP
Profits

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16
Q

Depression

A

very severe recession

relatively long period of stagnation in business activity and high unemployment rates

firms will go out of business

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17
Q

Economic indicators

A

gathered by the Conference Board, statistics that historically have been highly correlated with economic activity

18
Q

Leading Indicators

A

Change before economy starts to follow a trend:

  1. avg new unemployment claims
  2. building permits for residence
  3. avg, length of workweek
  4. money supply
  5. standard and poor’s 500 stock index
  6. orders for gods
  7. price changes of materials
  8. index of consumer expectations
  9. interest rate spread
  10. index of supply deliveries
19
Q

Lagging Indicators

A

follows economic activity. Change after economic trend has started:

  1. prime rate charged by banks
  2. avg. duration of unemployment
  3. commercial and industrial loans outstanding
  4. consumer price index for services
  5. consumer debt-to-income ratio
  6. changes in labor cost per unit of mfg output
  7. inventories to sales ratio
20
Q

Coincident Indicators

A

occur at same time as the economy:

  1. industrial production
  2. manufacturing and trade sales
  3. GDP
  4. personal incomes less transfer payments
21
Q

Aggregate Demand Curve

A

max quantity of all goods and services that households, firms, and the govt are willing and able to purchase at any given price level

22
Q

Aggregate Supply Curve

A

maximum quantity of all goods and services producers are willing and able to produce at any given price level

23
Q

Short Run AS curve

A

upward sloping

as prices rise, firms are willing to produce more goods and services

24
Q

Long Run AS curve

A

vertical

25
Q

Potential GDP

A

level of real GDP that the economy would produce if its resources were fully employed

26
Q

Reduction in Demand

A

Decrease in:
GDP
Profits
Prices

Increase in:
unemployment

27
Q

Increase in Demand

A

Decrease in:
Unemployment

Increase in:
GDP
Profits
Prices

28
Q

Reduction in Supply

A

Decrease in:
GDP
Profits
Prices

Increase in:
unemployment

29
Q

Increase in Supply

A

Decrease in:
unemployment

Increase in:
GDP
Profits
Prices

30
Q

Factors that Shift Aggregate Demand

A 
Taxes
Wealth
Interest Rates
Consumer Confidence
Exchange rates
Government Spending
31
Q

Wealth

A

Increase:
AD, GDP, and prices increase
unemployment decreases

Decrease:
AD, GDP, and prices decrease
unemployment increase

32
Q

Real Interest Rates

A

Increase:
AD, GDP, and prices decrease
unemployment increase

Decrease:
AD, GDP, and prices increase
unemployment decrease

33
Q

Consumer Confidence

A

Increase:
AD, GDP, and prices increase
unemployment decrease

Decrease:
AD, GDP, and prices decrease
unemployment increase

34
Q

Exchange Rates

A

Increase:
AD, GDP, and prices decrease
unemployment increase

Decrease:
AD, GDP, and prices increase
unemployment decrease

35
Q

Government Spending

A

Increase:
AD, GDP, and prices increase
unemployment decrease

Decrease:
AD, GDP, and prices decrease
unemployment increase

36
Q

Consumer Taxes

A

Increase:
AD, GDP, and prices decrease
unemployment increase

Decrease:
AD, GDP, and prices increase
unemployment decrease

37
Q

Multiplier Effect

A

an increase in consumer, firm, or government spending produce a multiplied increase in the level of economic activity

results from marginal propensity to consume (MPC)

=1/(1-MPC)

38
Q

Shift SR AS

A

affect business cycles

39
Q

Input Prices

A

Increase:
AS, GDP decrease
unemployment and prices increase

Decrease:
AS,GDP increase
unemployment and prices decrease

40
Q

Supply Shocks

A

Supply plentiful:
AS,GDP increase
unemployment and prices decrease

Supply curtailed:
AS, GDP decrease
unemployment and prices increase

BEC - Economic Concepts (3 decks)

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