Los 13.c Flashcards
(16 cards)
How does spending on nondurable goods react to the business cycle, and what are examples?
Spending on nondurables (like food and household products) remains relatively stable regardless of the business cycle.
Why is spending on durable goods highly cyclical, and what are examples?
Durable goods are high-value purchases like appliances, furniture, and cars; consumers buy more during expansions and postpone purchases during contractions.
How does spending on services behave during the business cycle?
It follows the business cycle but is less sensitive than durable goods; discretionary services (e.g., travel, dining) vary more than essential services (e.g., healthcare, insurance).
How does consumer spending change across the business cycle?
It increases during expansions and decreases during contractions.
What is the largest component of GDP, and what influences it?
Consumer spending, influenced by current income levels and expectations about future income
Why does the housing sector have a bigger impact on the economy than its size suggests?
Because housing activity swings sharply during booms and busts — big increases or decreases in home buying and construction ripple through related industries (like construction, finance, and materials), amplifying overall economic changes.
How do mortgage rates affect housing activity?
Low mortgage rates make borrowing cheaper, encouraging more home buying and construction; high rates make mortgages expensive, discouraging purchases and slowing down building.Low mortgage rates boost home buying and construction; high mortgage rates reduce them.
How does the relationship between housing costs and income impact housing activity?
When incomes are strong compared to home prices, people can afford to buy more homes; but if home prices rise faster than incomes (especially late in expansions), housing activity slows because fewer people can afford to buy.
How does speculative activity affect the housing market?
Expectations of rising prices can drive overbuilding and buying, but eventually lead to falling prices and sharp drops in housing activity when speculation fades.
How do demographic factors influence housing demand?
A larger population of 25- to 40-year-olds and shifts from rural to urban areas increase demand for housing construction.
What are the main factors that determine a country’s level of imports and exports?
Domestic GDP growth, GDP growth of trading partners, and currency exchange rates.
How does domestic GDP growth affect imports?
Higher domestic GDP growth increases imports because people and businesses have more income to spend on foreign goods; slower GDP growth reduces that spending.
How does foreign GDP growth affect a country’s exports?
When trading partners’ GDP grows, they have more income to spend, boosting demand for imported goods, including exports from your country; if their economies slow down, their imports (your exports) fall.
How do currency exchange rates affect imports and exports?
A stronger domestic currency makes your goods more expensive to foreigners (hurting exports) and makes foreign goods cheaper for you (boosting imports); a weaker domestic currency has the opposite effect.
How quickly do currency effects impact trade compared to GDP growth effects?
Currency effects usually take time because businesses and consumers adjust gradually to long-term trends in exchange rates; GDP growth effects are more immediate because they directly influence spending power.
whats the difference between a leading, concident and lagging indicator?
Leading indicators change before the economy moves — they predict future movements (e.g., new orders, stock market performance).
Coincident indicators move at the same time as the economy — they show the current state (e.g., GDP, employment levels).
Lagging indicators change after the economy moves — they confirm trends (e.g., unemployment rate, corporate profits).
