Unit 9: Economics Flashcards
Four Stages, or Phases, of a Business Cycle In order:
Expansion
Peak
Contraction
Trough
Everyone Pleads for Cinnamon Toast
Downturns (contractions) in the business cycle tend to be characterized by:
rising numbers of bankruptcies and bond defaults,
higher consumer debt,
falling stock prices,
rising inventories (a sign of slackeningconsumer demand in hard times), and decreasing gross domestic product
A trough is characterized by:
- high unemployment,
- flat GDP,
- low inflation, and
- low but not decreasing-_consumer demand.
Expansion in the business cycle tends to be characterized by:
increased consumer demand for goods and services, increases in industrial production,
rising stock prices,
rising property values, and
increasing GDP
A peak (prosperity) is characterized by:
- very low unemployment,
- a slowdown in inflation,
a slowing of GDP growth, and - steady consumer demand
Some economists break the expansion phase into two separate phases:
recovery and expansion.
_____ is the period of growth from the trough to the prior peak.
Recovery
_____ is when the economy reaches the prior peak and continues to grow.
Expansion
A more serious inflation period is more likely to occur during the ____ phase of the business cycle
expansion
If unemployment is low, then employment is _____. If unemployment is high, employment is ____.
high
low
When the economy enters an extended period of contraction that continues for _____ or longer, it is called a recession.
six months (two quarters)
If a contraction continues for _____ it is then called a depression.
18 months
_____ is when the economy bottoms out and lays the groundwork for recovery and expansion
Trough
Major Economic Indicators
Gross Domestic Product (GDP)
Consumer Price Index (CPI)
Gross National Product (GNP)
GDP:
A nation’s annual economic output-all the goods and services produced within the nation
In the United States, GDP figures are released ____ by the Commerce Department. A positive figure indicates that the economy is growing. A negative figure indicates that the economy is contracting.
quarterly
The _____ measures the overall change in consumer prices based on a representative basket of goods and services over time. It is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.
Consumer Price Index
The term constant dollar measurement is sometimes used for ____.
CPI
The CPI is computed each ____.
month
_____ indicators are those indicators that tend to change direction ahead of the overall
economy. The change of direction may lead the economy by a very long time frame (months)
to a very short time frame (weeks), but it has proven to be reliable.
Leading
Types of leading indicators:
Money supply (M2)
* Building permits (housing starts)
* Average weekly initial claims for state unemployment compensation
* Average work week in manufacturing
* New orders forconsumer goods
Machine tool orders
Changes in inventories of durable goods
Changes in sensitive materials prices
Stock prices (as measured by the S&P 500 Index) Changes in business and consumer borrowing
_____ indicators change direction along with the economy as a whole. Because these indicators are often published after the time period has passed, they are good confirmation tools of the leading indicators.
Coincident
Types of coincident indicators:
Number of hours worked (as a proxy for personal income) Employment levels (as measured by the rate of unemployment) Nonagricultural employment
Personal income
Industrial production
Manufacturing and trade sales GDP
_____ indicators are those indicators that change direction after the economy has begun a new trend but serve as confirmation of the new trend.
Lagging