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13 Terms

1
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Business Cycle

Fluctuations in the economy characterized by changes in economic activity.

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Peak

The height of the economy where it is most prosperous.

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Recession

A period where GDP does not grow for at least 6 months (2 quarters).

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Depression

A severe recession where real GDP decreases over 10%.

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Trough

The lowest point of a downturn, specifically in a recession or depression.

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Expansion/Recovery

A phase where real GDP grows.

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Aggregate Supply

The total goods and services that businesses are willing and able to produce based on changes in the price level.

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External Shocks (to Aggregate Supply)

Factors such as weather, oil prices, and technological changes that can affect aggregate supply.

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Aggregate Demand

The total goods and services purchased by all sectors of the economy, influenced by changes in the price level.

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External Shocks (to Aggregate Demand)

Factors such as household wealth, consumer confidence, and government policy that can impact aggregate demand.

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Characteristics of Fluctuation

Irregular and unpredictable changes in economic variables, impacting the standard of living.

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Effect of AD on Expansion

When aggregate demand increases, it leads to expansion where prices rise and aggregate supply is boosted.

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Effect of AD on Recession

When aggregate demand decreases, it causes a recession leading to falling prices and decreased aggregate supply.