GDP
GDP measures the value of what?
All final goods and services produced in a country in one year
What are the four phases of the business cycle?
Prosperity, Recession, Depression, Recovery
What is inflation?
A general rise in prices
What do interest rates represent?
The cost of borrowing money
What is the unemployment rate?
% of people actively looking for work but not working
What makes GDP per capita a better measure than GDP alone?
It divides GDP by population, showing output per person
Which phase has the highest unemployment rate?
Depression
What is deflation?
A general fall in prices
If interest rates are high, do people borrow more or less?
Less
What are the three main business cycle indicators we studied?
GDP, unemployment rate, and inflation.
Would babysitting your little brother for free count in GDP? Why or why not?
No — it’s not a market transaction, so it isn’t counted.
In which phase do businesses usually invest in new equipment?
Prosperity or Recovery
Why can deflation hurt businesses?
Consumers wait to buy, sales drop, businesses cut jobs
How do low interest rates affect businesses?
They can borrow more cheaply to expand
Quantitative data vs. qualitative data — what’s the difference?
Quantitative = numbers; Qualitative = opinions/surveys
If pay a landscaping company to mow your own lawn, is it counted in GDP? Why or why not?
Yes — it’s a market transaction recorded by a business, so it’s counted in GDP.
In which phase of the business cycle do consumers cut back on big purchases and businesses begin layoffs?
Recession
Inflation measured by CPI can feel deceptive. Why?
CPI uses a fixed basket of goods, but people buy different things
How do interest rates affect consumers?
High = loans, mortgages, credit cards cost more; Low = cheaper borrowing
If unemployment is high, GDP is falling, and inflation is low, what phase of the business cycle are we in?
Recession
Name the four components of GDP.
Consumer spending, business spending, government spending, net exports
Give one consumer and one business behavior during a recession.
Consumers cut back spending; businesses reduce production or lay off workers
Name the two causes of inflation.
Demand-pull and cost-push
How do interest rates affect the government?
Higher rates make paying off debt more expensive
Define “economic indicators.”
Data that show the overall health of the economy