Chapter #3

Question 1

Rate of Inflation over a period of time Calculation

Answer 1

CPI Beginning of the period AKA most recent - CPI end of the period AKA least recent / CPI at the beginning of the period x100

Question 2

Phases of the Business Cycle: Phase 1 - Expansion

Answer 2

Economy steadily expanding
- job creation steady
- more start ups than bankruptcies
- inflation is stable

Question 3

Phases of the Business Cycle: Phase 2 - Peak

Answer 3

Top of the cycle

• stock prices fall and stock market declines
• business sales decline
• labour and production services

Question 4

Phases of the Business Cycle: Phase 3 - Contraction

Answer 4

Entering downturn

• real GDP declines
• business failures out weight start ups
• spend less and save more

Question 5

Phases of the Business Cycle: Phase 4 - Through

Answer 5

Continues to fall, demand of higher wages

• inflation falls
• stock prices rally
• those saving are now encouraged to spend

Question 6

Phases of the Business Cycle: Phase 5 - Recovery

Answer 6

GDP returns to original peek

• increase production to meet demand
• widespread lay offs over, unemployment still high
• firms not ready yet to make big investment

Question 7

GDP Calculation

Answer 7

C + I + G + EX - IM