Business Cycle Basics
What are the four main phases of the business cycle?
Expansion, Peak, Contraction, and Trough
What is the federal Reserve's primary job?
To manage the nation's monetary policy to promote stable prices, maximum employment, and moderate long-term interest rate.
What is a tariff?
A tax on imported goods designed to protect industries or raise revenue.
What is the opposite of a surplus?
A shortage.
What is the purpose of a labor union? Include one example.
To protect and promote worker rights. Ex. Fair wages, good working conditions, benefits.
What happens to unemployment during a contraction?
Unemployment usually increases because businesses reduce production and lay off workers.
What happens when the Fed lowers interest rates?
Borrowing becomes cheaper, encouraging spending and investment, which stimulates the economy.
What is the difference between a quota and an embargo?
A quota is limitations on the quantity of a good that can be imported while an embargo bans trade with another country.
What is a shortage?
When the quantity demanded exceeds the quantity supplied at a given price.
What is collective bargaining?
Bargaining between employers and employee representatives to reach agreements on wages and work conditions.
What is a recession, and how long does it typically last?
A recession is a period economic decline lasting at least two consecutive quarters, marked by falling GDP, income and employment.
What is the reserve requirement, and why is it important?
It's the percentage of deposits banks must keep in reserve. It controls how much money banks can lend, influencing the money supply.
What is opportunity cost?
The value of the next best alternative.
How does the supply affect prices?
If supply increases, prices typically fall & vice versa.
What is the difference between mediation and arbitration?
Mediation has a neutral third party help to reach an agreement while arbitration has a third party that makes the final decision.
How can inflation be both helpful and harmful?
Inflation can be helpful when it reflects growing demand and rising wages, but harmful when it erodes purchasing power and increases the cost of living
Compare tight-money and easy-money policies.
Tight-money reduces the money supply to fight inflation. Easy-money increases the money supply to combat recession.
What is the difference between comparative and absolute advantage?
Comparative advantage is the production of a good at an opportunity cost while absolute advantage is a higher production rate using fewer resources.
What is the excise tax?
A tax on specific goods that may be higher in demand.
Name and explain one economic indicator from each type: leading, lagging, and coincident.
- Leading : Stock market performance
- Coincident : Employment levels
- Lagging : Unemployment rate
Why might a government lower taxes during a recession?
To increase consumer spending and business investment, which can help stimulate economic growth.
How do trade barriers impact international markets?
They reduce the flow of goods, raise prices, and lead to trade issues.
It helps businesses choose options that offer them the greatest benefits with lower costs.
What is a laissez-faire economy and how does it contrast a command economy?
Laissez-faire involves very little government control while a command economy has a lot of government control.