Economics & Business Cycles Flashcards
Unused production and Less investment is in the part of the business cycle called….
A Trough
If GDP is rising and unemployment is falling, what is that/
An expansion
A monetary policy is?
An increase in the money supply (expansionary)
When there is full employment and prices are stable, what will happen if there is a tax decrease?
Inflation - unless government reduces spending as well
US dollar increases, aggregate demand will….?
Decrease. when US dollar goes up this means that US products are more expensive. exports will decrease.
What does an increase in nominal wages do?
It raises the cost to produce something.
- prices go up.
- production would be less (go down)
What happens if the aggregate supply curve shifts to the right?
GDP goes up but price goes down
The line goes from the bottom inner corner of the graph
and up and outward.
Shift to the right is kind of downward.
What happens at the peak of a business cycle?
Capacity constraint and labor shortage.
Upward pressure on the price
When an economy is at full employment is there cyclical
unemployment?
No, there is no cyclical unemployment.
There is frictional, structural and seasonal unemployment.
What happens when prices go up because of cost going up?
It’s called cost/push inflation. meaning that the cost goes up. therefore supply becomes more expensive.
this pushes the price on the market even higher.
The ones that benefit the most from inflation are..
People that are in debt. because they are paying back
with inflated dollars
What should the Fed do to Decrease the money supply?
Either of these three will work:
Sell gov securities on the market
Increase the discount rate
Increase required reserve ratio
To Increase the money supply you would do the opposite.
If the average age in workforce decreases…
There will be frictional unemployment.. because younger people move between jobs more than older people.
Decreasing aggregate demand and increasing aggregate supply will have what effect on inflation
Will reduce inflationary pressures.
Prices will fall.
Boycott will cause..
Decrease demand because of the boycott.
Supply will not be affected.
Reduce overall profit , because of less sales.
No effect on revenue.
Things that affect the Price elasticity of Demand are..
More substitutes - would mean a higher price elasticity of demand. which means that a change in price will very likely affect the sales/demand of that product as people will use substitute products that cost less.
Cost to switch suppliers
How necessary the product is
Brand loyalty
Percentage of income spent
Habitual demand
Product demand becomes more elastic when
There are more substitutes available
or if the time frame is longer
If product demand is elastic and the price goes down
this will cause..
Revenue to increase. Because if price goes down people will buy more and therefore generate greater revenue in the economy.
Elasticity
Is a measure of how sensitive the demand for, or the supply of, a product is to a change in price.
Price elasticity of demand is measured
as the percentage change in quantity demanded divided by the percentage change in price.
