Definitions Flashcards
What is the Neutrality of Money?
When the central bank increases or decreases the money supply, it only changes prices (like inflation) and not the real economy (like jobs or production).
Printing more money raises the cost of goods (inflation), but it doesn’t magically create more factories or jobs in the long run.
What is the Business Cycle?
The economy doesn’t grow smoothly all the time. It has ups and downs (booms and recessions) around a steady long-term growth trend.
A boom is when everyone is spending and businesses are growing; a recession is when people spend less, and businesses shrink.
What is a Countercyclical Variable?
A variable that moves in the opposite direction of the economy’s health (GDP).
Unemployment is countercyclical because it goes up when the economy is doing poorly and down when the economy is doing well.
What is a Procyclical Variable?
A variable that moves in the same direction as the economy’s health (GDP).
Consumption is procyclical because people spend more when the economy is strong and less when it’s weak.
What is a Leading Variable?
A variable that gives early signs of where the economy might be heading.
Stock prices are a leading variable because if investors expect businesses to grow, stock prices go up, predicting future economic growth.
