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12.2/13.2

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Business cycle
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A period of macroeconomic expansion
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Expansion
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A preiod of economic growth as measured by a rise in GDP
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Economic growth
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A steady, long term increase in real GDP
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Peak
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The hight of economic expansion, when real GdP stops rising
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Contraction
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A period of economic decline marked by falling real GDP
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Trough
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The lowest point in an economic contraction, when real GDP stops falling
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Recession
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A prolonged economic contraction
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Depression
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A recession that is especially long and severe
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Stagflation
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A decline in real GDP combined with a rise in the price level
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Leading indicators
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Key economic variables that economists use to predict a new phase of a business cycle
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What phase of a business cycle can lead an economy into recession?
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a contrction because a recession is a prolonged contarction and to determine when in recession real GDP starts to fall. Contraction is a period of economic decline marked by falling real GDP
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How can interest rates push a business cycle into a contraction?
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High interest rates can promote saving, which in turn can cause a downturn in demand, causing surplus products on the market.
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Why is the stock market considered to be a leading indicator of economic change?
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a leading indicator is a set of key variables that economists use to predict phase of a business cycle, and a stock market, typically, turns sharply downward before a recession begins.
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How did the Great Depression affect economists beliefs about the macroeconomy
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The Great Depression affected economists’ beliefs about the macroeconomy because it made them realize that the U.S. economy actually depends on the economies of countries around the world. Prior to this, the thought was that our economy was solely dependent on actions within the U.S.
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Inflation
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A general increase in prices
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Purchasing power
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The ability to purchase goods and services
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Price Index
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A measurement that shows how the average price of standard group of goods changes over time
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Consumer price index
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CPI- a price index determined by measuring the price of a standard group of goods meant to represent the “market basket” of a typical urban consumer
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Market basket
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A representative collection of goods and services
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Inflation rate
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The percentage rate change in price level over time
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Core Inflation
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The rate of inflation excluding the effects of food and energy prices
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Hyperinflation
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Inflation THAT IS out of control
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Quantity theory
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Theory that too much money in the economy causes inflation
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Demand- Pull theory
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Theory that inflation occurs when demand for goods and services exceeds existing supplies
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Cost-push theory
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Theory that inflation occurs when producers raise prices in order to meet increases costs
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Wage-price spiral
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The process by which rising wages cause higher and higher prices, and higher prices cause higher wages
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Fixed income
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Income that does not increase even when prices go up
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Deflation
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A sustained drop in the price level
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Industrial downfall
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40 Germany 14 Britain 29 France
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Hoovervilles
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The homeless towns created in hoovers presidency
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Business cycle
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Expansion Peak Contraction Trough