Cram sheet#2 - Cram sheet Chap 4 1. -Business cycles...

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Cram sheet Chap 4 1. -Business cycles reflect a change in economic activity – 2. -Phases of the business cycle. a. Peak – highest point, down turn – b. GDPS falls, Trough – lowest point, c. Recovery – GPD rises, d. Expansion – increased peak, e. Recession – Prolonged trough, f. Depression – Prolonged recession. 3. -CPI – basket of goods + services, not allowed to change. CPI is calculated by total cost of market basket at current year prices dived by total cost of market basket at base year price. 4. -Importance of CPI – As an economic indicator, used to find the “real Value” of an economic variable, can be used to adjust certain income payments. 5. Market basket are the purchases of the avg house hold. 6. -Limitation of CPI in computing Inflation : Inflation rate is calculated by CPI current year minus CPI previous year, divided by CPI previous years all times 100. 7. -when inflation is known, you can determine if your income is keeping up, more then keeping up or not keeping up with inflation. Real income = (Nominal income/CPI)x100 8. Real GDP is nominal GDP adjusted for inflation. Nominal GDP is measured in current dollars. a. Importance of real GDP is that with nominal GDP we don’t know if the Quantity is increasing or decreasing. With real GDP price is constant and a change in GDP is determined by a change in quantity. b. GDP – the market value of all goods and services produced in a nation in a give time period. 9. -GDP has 4 component parts: Consumption, Investment, Government expenditures and net exports. a. Consumption : Durable goods, non durable goods, services b. -Investments – Fixed investment (new capital), Change in business inventories. c. -Government – National, state and local spending. 10. Unemployment rate – Individuals who are actively seeking work but are unemployed. Types of unemployment a. Cyclical unemployment – Lack of employment due to fluctuation in economic activity. b.
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Cram sheet#2 - Cram sheet Chap 4 1. -Business cycles...

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