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The Business C ycle

The Business C ycle. Phases. Recession: when GDP declines for 2 consecutive quarters or 6 months Trough: the bottom of a recession (when the economy starts to turn around) Peak: Highest point of a recovering economy before it goes into a recession . Causes of the Business Cycle.

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The Business C ycle

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  1. The Business Cycle

  2. Phases Recession: when GDP declines for 2 consecutive quarters or 6 months Trough: the bottom of a recession (when the economy starts to turn around) Peak: Highest point of a recovering economy before it goes into a recession
  3. Causes of the Business Cycle Capital expenditures Inventory Adjustments Innovation and Imitation Monetary Factors External Shocks

  4. Unemployment

  5. The Unemployment Rate Number of unemployed people divided by the number of people in the work force Number of unemployed people is determined by people without jobs who are actively looking for work
  6. Types of Unemployment Frictional: short term unemployment (between jobs) Structural: change in economy reduces demand for a skill Cyclical: directly related to business cycles Seasonal: due to weather changes Technological: unskilled workers replaced by machines

  7. Inflation

    Rise in overall prices Deflation: drop in overall prices
  8. Measuring inflation Price indexes: using a market basket of goods to determine prices Use an Inflation rate (change in price/beginning price)*100
  9. Degrees of Inflation Creeping: 1-3% per year Galloping: 100-300% per year Hyperinflation: 500% per year
  10. Causes Demand Pull: people try to buy more than can be produced and shortages occur Some blame federal government deficit spending Rising input costs (labor) Money supply grows faster than real GDP
  11. Income distribution Reasons for distribution Education: higher education creates higher income Wealth: Wealthy people can afford to earn more income Discrimination: people are not promoted Ability: Athletes Monopoly Power: American Medical Association—limits numbers in group
  12. Poverty People who fall below certain income levels (poverty Line) 37 million people in the US live in poverty (13% of US citizens)
  13. Anti-Poverty Programs Income Assistance General Assistance Social Service Programs Tax Credits Enterprise Zones Workfare Programs Negative Income Tax
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