Basics of Economics

four stages of the economic cycle

expansion, peak, contraction, trough

expansion

Characterized by increasing employment, economic growth, and upward pressure on prices

peak

The highest point of the cycle, where growth reaches its maximum rate

contraction

A slowdown in the pace of economic activity, leading to a recession if prolonged

trough

The lowest point of the cycle, where the economy begins to recover

Gross Domestic Product

total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It is a broad measure of a nation’s overall economic activity

Opportunity Cost

value of the next best alternative that is foregone when making a decision. It represents the benefits an individual, investor, or business misses out on when choosing one alternative over another

Example of Opportunity Cost

individual decides to go back to school to get a master’s degree instead of taking a job with a high paying salary

Fiscal Policy

use of government spending and taxation to influence the economy. It is used to stabilize the economy over the business cycle

Monetary Policy

process by which a central bank, like the Federal Reserve in the United States, manages the money supply to achieve specific goals, such as controlling inflation, consumption, growth, and liquidity

Fiscal vs Monetary Policy

Fiscal policy refers to government actions regarding taxation and spending, while monetary policy involves a central bank's actions to manage the money supply and interest rates within an economy

Is a fiscal policy or monetary policy more effective in controlling a recession?

fiscal policy is often more direct and can be better suited to tackling specific issues, but it faces implementation delays and potential political hurdles. Monetary policy is more flexible and quicker to implement but may be less effective in extreme conditions