Unit 1 Pt. 2 Flashcards
(26 cards)
What is the business cycle?
A period of macroeconomic expansion followed by a period of contraction.
List the 4 phases of the business cycle.
- Expansion: a period of economic growth
- Peak: the height of the expansion
- Contraction: a period of economic decline
- Trough: the lowest point of the contraction
What happens when an economy is expanding?
Many people have jobs and many goods and services are being produced and sold.
What are some characteristics of a contraction?
More people are unemployed and fewer goods and services are being produced and sold.
Distinguish between recessions and depressions.
- Recession: A contraction that lasts for at least 6 months
- Depression: a particularly severe and long contraction
List the 4 factors that affect the business cycle.
- Investment in Businesses: More investment leads to business growth
- Interest Rates: High rates reduce borrowing
- Consumer Expectations: Optimism increases spending
- External Shocks: Can be positive or negative
Fill in the blank: A contraction that lasts for at least _______ is called a recession.
[6 months]
True or False: All contractions are equally severe.
False
Fill in the blank: The _______ is the lowest point of the contraction.
[Trough]
Cost/Benefit Matrix: Region I
Low Benefit, High Cost
- Least desirable programs a company can implement
Cost/Benefit Matrix: Region II
High Benefit, High Cost
- Desirable by high benefit characteristics
- High Cost prevents widespread use
Cost/Benefit Matrix: Region III
Low Benefit, Low Cost
- “Dangerous programs” - attractive bc inexpensive to operate
Cost/Benefit Matrix: Region IV
High Benefit, Low Cost
- The ideal - Companies can operate programs w/out huge impact on budget
Decision Making
Process of identifying a choice
Goal
Smth a person wants to have or do
Humans Capital
Skills, knowledge, + experience possessed by an individual/population, viewed in terms of their value/cost to an organization/country.
Macroeconomics
Deals w/ economic theory + economic decisions of large bodies like the gov.
Microeconomics
Deals w/ behaviour + decisions of smaller units like individuals
Do Markets Self Adjust? YES…
Left alone, markets quickly self-adjust.
- Micro = macro
- Business cycles due to external causes or gov policy mistakes
- Gov. Failures is worse than market failures
- Hands-off gov. role
- Political right
Do Markets Self Adjust? NO…
Left alone, markets fail to self-adjust.
- Micro =/ macro
- Business cycles due to internal causes– coordination failures between input & output markets
- Market failure is worse than gov. failure
- Hands-on gov. role
- Political left
Determine how well the economy is doing: GDP
Gross Domestic Production
Value of all products + services produced annually in a country
Determine how well the economy is doing: Unemployment
Not employed & actively seeking work.
Determine how well the economy is doing: Inflation
Rising average prices + falling value of money.
Normative Statements
Use factual evidence as support, but they are not by themselves factual.
EX. “the unemployment rate is too high”
- Incorporate one’s opinions + underlying morals & standards
- Normative analysis refers to making recommendations about what action should be taken or taking a particular viewpoint on a topic
