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Questions and Answers
What characterizes hyperinflation?
In which situation do inflation and unemployment rise simultaneously?
What does the Producer Price Index (PPI) measure?
Which type of unemployment is caused by technological advancements making skills obsolete?
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What does the unemployment rate represent?
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Which of the following describes cyclical unemployment?
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What does the GDP gap indicate?
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What is the likely outcome of outsourcing in an economy?
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What characterizes a recession in economic terms?
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What does a peak in the business cycle indicate?
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How does creeping inflation differ from other types of inflation?
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What is the purpose of leading economic indicators?
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What does the Consumer Price Index (CPI) primarily measure?
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What does the term 'through' signify in the business cycle?
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Which of the following best describes inflation?
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What is a price index used for?
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Study Notes
Business Cycles
- Business cycles are regular patterns of economic expansion and contraction over time.
- Business fluctuations are variations in economic activity, such as changes in GDP, employment, and production.
- A recession is a significant decline in economic activity, typically defined as two consecutive quarters of negative GDP growth.
- The peak is the highest point in the business cycle, marking maximum economic output before a downturn.
- The trough is the lowest point in the business cycle, signaling the end of a recession and the start of recovery.
- Expansion is the phase of the business cycle where economic activity increases, leading to growth in GDP, employment, and production.
- A trend line shows the general direction of a business cycle over time.
- A depression is a prolonged and severe downturn in economic activity, more severe than a recession.
- Depression scrip is substitute currency issued during economic depressions when the official currency is scarce.
Economic Indicators
- Leading economic indicators predict future economic movements, such as new orders for goods or stock market performance.
- The Dow Jones Industrial Average (DJIA) is a stock market index tracking 30 major U.S. companies.
- The Leading Economic Index (LEI) is a composite index of leading economic indicators forecasting future economic activity.
- Econometric models are statistical models that describe economic processes and forecast trends using mathematical equations.
Inflation and Deflation
- Inflation is the general rise in prices over time, decreasing the purchasing power of money.
- Deflation is a decrease in the general price level of goods and services, increasing the value of money.
- A price index measures the average change in prices for a specific basket of goods and services over time.
- The Consumer Price Index (CPI) tracks changes in the cost of a fixed basket of consumer goods and services.
- A market basket is the set of goods and services tracked in a price index.
- The base year is a reference year used to compare price levels or data across time.
- Creeping inflation is a low, steady rate of inflation, typically less than 3% per year.
- Hyperinflation is extremely rapid inflation where prices rise uncontrollably, often exceeding 50% per month.
- Stagflation occurs when inflation and unemployment rise simultaneously, usually during stagnant economic growth.
- The Producer Price Index (PPI) measures the average change in selling prices received by producers for their output.
- The Implicit GDP Price Deflator measures price changes in goods and services included in GDP, accounting for inflation and deflation.
Types of Inflation
- Demand-pull inflation occurs when demand for goods and services outpaces supply.
- Cost-push inflation is driven by rising production costs that lead producers to increase prices.
Creditors and Debtors
- Creditors are individuals or institutions owed money.
- Debtors are individuals or institutions that owe money.
Unemployment
- The civilian labor force includes people aged 16 and over who are either working or actively seeking work, excluding military personnel.
- Unemployed individuals are actively seeking work but are unable to find employment.
- The unemployment rate is the percentage of the labor force that is unemployed and actively seeking work.
- Long-term unemployment lasts for an extended period, typically over 27 weeks.
Types of Unemployment
- Frictional unemployment is short-term unemployment between jobs or when people are entering the workforce.
- Structural unemployment arises from changes in the economy, such as technological advancements or shifts in demand, leading to obsolete skills.
- Outsourcing involves hiring external firms or workers, often from other countries, to perform tasks previously done internally.
- Technological unemployment results from job losses due to advancements in technology reducing the need for human labor.
- Cyclical unemployment rises during economic downturns and falls during periods of growth.
- Seasonal unemployment occurs at specific times of the year due to low demand for labor in specific industries (e.g., farming, tourism).
GDP Gap
- The GDP gap is the difference between actual GDP and potential GDP, indicating the loss of economic output due to unemployment or underutilized resources.
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Description
Explore the essential concepts of business cycles, including phases such as expansion, peak, recession, and trough. Understand the differences between a recession and depression, along with key terms like business fluctuations and trend lines. This quiz will enhance your grasp of economic activity variations.
