The Business Cycle

Flashcards covering key vocabulary and concepts related to the business cycle, economic indicators, and market participants.

Money

Tool for exchanging resources for goods and services

Four Functions of Money

Medium of Exchange, Unit of Account, Standard of Deferred Payment, Store of Value

What has been used as money?

Woodpecker Skulls, Cowrie Shells, Stones, Pecus, People, Tobacco, Wampum, Corn, Animal Teeth, Bark, Cloth, Barley, Beads, Butter, Feathers, Fish, Fur, Liquor, Oats, Peas, Paper, Pieces, Sal, Tobacco, Strings, Whale Teeth, Metals

Inflation

An upward movement in the average level of prices (S/D)

Demand-Pull Inflation

Aggregate demand exceeds aggregate supply and consumers bid up prices

Cost-Push Inflation

Sustained increases in the cost of production cause the price of a product to rise

Determining whether a 9% month-to-month annualized increase in consumer prices is unusual depends on…

The stage of the business cycle.

All economic indicators

Must be put in the proper context before they can be used to aid us in decision-making (at both the micro and macro levels).

GDP (Gross Domestic Product)

This is the main measure of overall economic activity.

GDP Definition

The value of all final goods and services produced within a nation's borders

Nominal GDP

GDP measured in current prices

Real GDP

Takes inflation into account by measuring GDP in constant, or unchanging, prices

Business cycle

The ups and downs in economic activity.

Who is responsible for all of the activity that goes on in a business cycle?

The market participants.

Market Participants

Households, Firms, Government

The four distinct stages of the business cycle

Trough to Recovery, Recovery to Expansion, Expansion to Peak, Peak to Contraction

Stage 1: Trough to Recovery

Economic activity is contracting

Stage 2: Recovery to Expansion

Economic activity is slowly expanding

Stage 3: Expansion to Peak

The economy is nearing full capacity

Stage 4: Peak to Contraction

Economic activity has peaked and the contraction part of the business cycle begins