ECON 1201 Lecture Notes - Lecture 1: Black Market, Business Cycle, Final Good
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Micro: study of how households and firms make choices. Macro: study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Business cycle: alternating periods of economic expansion and economic recession. Expansion: period of a business cycle during which the total production and total employment are increasing. Recession: the period of a business cycle during which the total production and total employment are decreasing. Economic growth: the ability of an economy to produce increasing quantities of good and services. Inflation rate: the percentage increase in the price level from one year to the next: if real is before like real gdp, that means it is corrected for inflation. Four main categories of gdp: personal consumption expenditures, or consumption (c, gross private domestic investment, or investment (i, government consumption and gross investment, or government purchases (g, net exports of goods and services, or net exports (nx)
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According to classical economists, which one of the following is the correct (recommended) sequence of occurrences?
A. | The economy is in a recession, production falls and unemployment rises ==> the government increases spending, the money supply, and lowers taxes ==> total spending rises ==> employment rises ==> GDP rises |
B. | The economy is in a recession, production falls and unemployment rises ==> prices, wages, and interest rates decrease ==> business costs fall, profits rise, borrowing and consumer spending rise ==> employment and production rise ==> GDP rises |
C. | The economy is in an expansion, incomes are rising and production increases ==> the government decreases spending ==> less inflation ==> the economy continues to expand |
D. | The economy is in a recession, production falls and unemployment rises ==> spending falls ==> more layoffs ==> less production ==> more layoffs ==> deeper recession |
E. | The economy is in an expansion ==> prices rise ==> consumer spending falls ==> production falls ==> the economy contracts (recession) |