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12.2/13.2

Business cycle
A period of macroeconomic expansion
Expansion
A preiod of economic growth as measured by a rise in GDP
Economic growth
A steady, long term increase in real GDP
Peak
The hight of economic expansion, when real GdP stops rising
Contraction
A period of economic decline marked by falling real GDP
Trough
The lowest point in an economic contraction, when real GDP stops falling
Recession
A prolonged economic contraction
Depression
A recession that is especially long and severe
Stagflation
A decline in real GDP combined with a rise in the price level
Leading indicators
Key economic variables that economists use to predict a new phase of a business cycle
What phase of a business cycle can lead an economy into recession?
a contrction because a recession is a prolonged contarction and to determine when in recession real GDP starts to fall. Contraction is a period of economic decline marked by falling real GDP
How can interest rates push a business cycle into a contraction?
High interest rates can promote saving, which in turn can cause a downturn in demand, causing surplus products on the market.
Why is the stock market considered to be a leading indicator of economic change?
a leading indicator is a set of key variables that economists use to predict phase of a business cycle, and a stock market, typically, turns sharply downward before a recession begins.
How did the Great Depression affect economists beliefs about the macroeconomy
The Great Depression affected economists’ beliefs about the macroeconomy because it made them realize that the U.S. economy actually depends on the economies of countries around the world. Prior to this, the thought was that our economy was solely dependent on actions within the U.S.
Inflation
A general increase in prices
Purchasing power
The ability to purchase goods and services
Price Index
A measurement that shows how the average price of standard group of goods changes over time
Consumer price index
CPI- a price index determined by measuring the price of a standard group of goods meant to represent the “market basket” of a typical urban consumer
Market basket
A representative collection of goods and services
Inflation rate
The percentage rate change in price level over time
Core Inflation
The rate of inflation excluding the effects of food and energy prices
Hyperinflation
Inflation THAT IS out of control
Quantity theory
Theory that too much money in the economy causes inflation
Demand- Pull theory
Theory that inflation occurs when demand for goods and services exceeds existing supplies
Cost-push theory
Theory that inflation occurs when producers raise prices in order to meet increases costs
Wage-price spiral
The process by which rising wages cause higher and higher prices, and higher prices cause higher wages
Fixed income
Income that does not increase even when prices go up
Deflation
A sustained drop in the price level
Industrial downfall
40 Germany
14 Britain
29 France
Hoovervilles
The homeless towns created in hoovers presidency
Business cycle
Expansion
Peak
Contraction
Trough

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