Outlining the Chapter

Transcription

1 Chapter 14 Outlining the Chapter Look over the chapter, paying attention to the main topics in the chapter. As you look over each section in the chapter, fill in the missing words in the outline below. I. Business cycles A. A business cycle relates to the and in economic activity, as measured by changes in. B. is calculated by taking the quantity of goods and services produced in an economy in a current year and multiply by the prices that existed in a base year. Real GDP = P base year Q current year C. Economists usually talk about four or five phases of the business cycle: 1. At the of a business cycle, real GDP is at a temporary high. 2. A is when real GDP decreases. a. A is a decline in real GDP for two consecutive quarters (there are four quarters in a year). 3. A is the low point in real GDP, just before it begins to turn up. 4. The is the period when real GDP is rising; it begins at the trough and ends at the initial peak. 5. An refers to increases in real GDP beyond the recovery. a. An entire business cycle is measured from to. The typical business cycle is four to five years, although a few have been shorter and some longer. D. Forecasting business cycles 1. Economists have devised a few indicators of the and sickness of the economy. These indicators are called,, and indicators. a. We expect a indicator to before an upturn in Real GDP and before a downturn in Real GDP. b. We expect a indicator to reach its point coincident with a peak of a business cycle, and to reach its with the trough of a business cycle. Study Guide 150 NTC/Contemporary Publishing Group, Inc.

2 c. We expect a indicator to reach its sometime after the peak of a business cycle, and to reach its sometime after the trough of a business cycle. d. A few of the leading indicators include prices, the supply (in inflation-adjusted dollars), expectations, hours worked in manufacturing, and so on. E. What causes the business cycle? 1. Changes in the supply. a. When either the absolute money supply, or the growth rate in the money supply, people buy fewer goods and services and the economy falls into a recession. b. When the money supply, people buy, and an economic expansion commences. c. Some economists say the erratic behavior of the monetary authorities or the Fed causes ups and downs in the economy. 2. Changes in business investment, residential construction, and spending a. A recession might result from a cutback in business or government spending that lowers aggregate in the economy. b. Things are reversed when either the business sector or government starts to spend more. 3. Politics a. Some economists believe that some business cycles may be caused by trying to get re-elected to office. b. Politicians try to government spending to increase aggregate in the economy. c. With greater aggregate, firms will sell more goods and services and hire more workers. d. When times are good, voters are likely to reward the people in office who (they believe) made this possible. e. Congress may want to spending to aggregate demand during. f. If spending is cut too much, the economy could slide into recession. 4. Innovations can stimulate business cycles. 5. are major supply-side changes in the economy that reduce the capacity of the economy to produce. Study Guide 151 NTC/Contemporary Publishing Group, Inc.

3 a. Firms end up producing less, so they fire some of their workers. Real GDP goes and the unemployment rate goes. II. Economic Growth A. Economic growth refers to either real economic growth or to real economic growth. 1. Absolute real economic growth is an in from one period to the next. 2. Per-capita real economic growth is an increase from one period to the next in, which is Real GDP divided by population. B. Even small differences in economic growth matter 1. For example, a country with a 4 percent growth rate can double its Real GDP in six fewer years than a country with a 3 percent growth rate. C. The says that the way to find out the time required for any variable to double is to divide its percentage growth rate into 72. D. Growth in a production possibilities frontier framework 1. The production possibilities frontier (PPF) shows the different of the two goods the economy can produce when it uses all its. E. Two kinds of economic growth 1. Economic growth can come from the PPF. a. At this point there are some resources in the economy. b. Lowering the unemployment rate, and moving toward full employment, will result in economic growth. c. This can be done with policies to aggregate demand and the unemployment rate. 2. Economic growth can come from the PPF. a. If an economy is already on its PPF, the only way it can experience economic growth is if its PPF shifts to the right. F. What causes economic growth? 1. More make it is possible to produce more goods and services. 2. More makes it is possible to produce more output. a. More importantly, more produces more output: Labor productivity = Total output produced Total hours it takes to produce total output Study Guide 152 NTC/Contemporary Publishing Group, Inc.

4 3. Capital increases productivity and increases output or real GDP. 4. advances make it possible to obtain more output from the same amount of resources. 5. to produce and innovate help create economic growth. G. Two worries about future economic growth 1. More economic growth may come with more, more factories, more crowded cities, more emphasis on material goods, and so on. 2. More economic and population growth may hasten the time when the world runs out of resources. Study Guide 153 NTC/Contemporary Publishing Group, Inc.

5 Chapter 14 Building Vocabulary Match the letter of each term with the correct description below. a. absolute real economic growth b. business cycle c. contraction d. expansion e. peak f. per-capita real economic growth g. production possibilities frontier h. recession i. recovery j. trough 1. Recurrent swings (up and down) in real GDP 2. This occurs when real GDP falls for two consecutive quarters 3. When the business cycle is at a temporary high 4. This refers to increases in real GDP beyond the recovery 5. An increase in real GDP from one period to the next 6. An increase from one period to the next in per-capita real GDP, which is real GDP divided by population 7. All of the possible combinations of two goods that an economy can produce in a certain period of time, under the conditions of a given state of technology, no unemployed resources, and efficient production 8. When real GDP is rising in a business cycle, beginning at the trough and ending at the initial peak 9. When real GDP is decreasing 10. The low point in real GDP, just before it begins to turn up Study Guide 154 NTC/Contemporary Publishing Group, Inc.

6 Chapter 14 AS YOU STUDY Illustrating Economic Skills The diagram below shows the five phases of a business cycle. Fill in the blank spaces with the correct phase for each point on the business cycle. Real GDP Time Study Guide 155 NTC/Contemporary Publishing Group, Inc.