Econ 102 Study Guide - Econ Study Guide 17:33:00 Chapter 7...

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Econ Study Guide 18/10/2008 17:33:00 Chapter 7     Business cycle - refers to the alternating periods of expansion and recession  that the U.S. economy has experienced since at least the early nineteenth  century. A o Expansion - a period during which total production and total  employment are increasing o Recession - a period during which total production and total  employment are decreasing Economic Growth - refers to the ability of an economy to produce increasing  quantities of goods and services. o Economies that grow to slow fail to raise living standards Inflation rate - percentage increase in the average leel of prices from one  year to the next.  GDP - measure of total production. It’s the market value of all final goods and  services produced in a country during a period of time, typically one year. o BEA(Bureau of Economic Analysis)-  complies the data needed to  calculate GDP Reports every three months o Measure GDP  by taking value, in dollar terms, of all goods and  services produced Include on the value of  final  goods and services. Final Good or service  is one that is purchased by its final  user and is not included in the production of any other good  or service
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Intermediate Good - goods that are purchased in the production  process, that are not included in the GDP. (Tires that GM  purchases for their cars or calculated into the GDP in the final  value of the car) GDP does not include the sales of used goods.  TOTAL INCOME of Economy = GDP GDP  can be measured by total wages, interest, rent, and profits  received by Households. The circular flow diagram shows that we can measure GDP  either by calculating the total value of expenditures on final  goods and services or by calculating the value of total income.  Transfer Payments - include social security payments to retired and disabled  people and unemployment insurance payments to unemployed workers.  o These payments are no included in GDP Because they are not  received in exchange for production of a new good or service. Financial System - Made up by banks, stocks, and bond markets o The flow of funds from households into the financial system makes it  possible for the government and firms to borrow.  Without the ability to borrow funds through financial system,  firms will have difficulty expanding and adopting new  technologies.  The BEA divides its statistics on GDP into four major categories of  expenditures.  o P ersonal Consumption Expenditures (Consumption) - made up of  expenditures on services, nondurable goods, and durable goods
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