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Analyze a business cycle graph. What characterizes the peak?
High economic activity, low unemployment, and potential inflationary pressures.
Analyze a business cycle graph. What characterizes the trough?
Low economic activity, high unemployment, and potentially deflationary pressures.
Analyze a business cycle graph. What happens to GDP during a contraction?
GDP decreases as economic activity slows down.
Analyze a business cycle graph. What happens to GDP during an expansion?
GDP increases as economic activity accelerates.
On a graph of the business cycle, how is a recession represented?
A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible as downward slope.
If a graph shows a prolonged period of low GDP growth, what phase of the business cycle is it likely depicting?
Likely depicting a trough or a slow recovery phase following a recession.
What does a steep upward slope on a business cycle graph indicate?
Indicates a rapid expansion phase with strong economic growth.
What does a flat line on a business cycle graph suggest?
Suggests a period of stagnation or very little economic growth.
How are unemployment rates typically represented on a business cycle graph?
Unemployment rates are often inversely related to GDP; they rise during contractions and fall during expansions.
What does a graph showing a shift in aggregate demand tell you about the economy?
A shift in aggregate demand can indicate changes in consumer confidence, government policies, or external factors affecting the economy.
How does an increase in consumer spending affect GDP?
Increases GDP because 'C' (consumer spending) is a component of the GDP calculation (C + I + G + Nx).
How does a recession affect cyclical unemployment?
Increases cyclical unemployment because businesses lay off workers due to decreased demand.
How does automation affect structural unemployment?
Increases structural unemployment by creating a mismatch between workers' skills and available jobs.
If a country exports more than it imports, how does this affect its GDP?
Increases GDP because net exports (Nx) are positive, contributing to the overall GDP calculation.
How does inflation affect the purchasing power of consumers?
Decreases purchasing power because each dollar buys fewer goods and services.
How does increased government spending impact the economy during a recession?
Increased government spending can stimulate demand and help the economy recover from a recession.
How does a rise in oil prices affect the CPI?
It increases the CPI because transportation costs and the prices of related goods and services rise.
How does a surge in housing construction affect GDP?
Increases GDP because investment spending ('I') includes residential construction.
If many workers quit their jobs to seek better opportunities, what type of unemployment increases?
Frictional unemployment increases as more people are temporarily between jobs.
How does increased investment in education and training affect structural unemployment?
It can reduce structural unemployment by better aligning workers' skills with employer needs.
What is GDP?
Total value of all goods/services produced within a country's borders in a specific time period.
What is Nominal GDP?
GDP measured in current prices; doesn’t adjust for inflation.
What is Real GDP?
GDP adjusted for inflation; gives a more accurate picture of economic growth.
What is Inflation?
General increase in prices over time.
What is the CPI?
Consumer Price Index; tracks the price of a “basket” of goods and services.
What is the labor force?
All people who are employed or actively seeking employment.
Define frictional unemployment.
Temporary unemployment when people are between jobs or entering the labor force.
Define structural unemployment.
Unemployment due to a mismatch between workers' skills and employers' needs.
Define cyclical unemployment.
Unemployment caused by a downturn in the business cycle (recession).
What is the Circular Flow Model?
A simplified representation of the economy, showing the flow of money and resources between households and firms.