Chapter 2-2 (Economic Conditions Change)

Deflation results in lower buying power of money

False - deflation is the general decrease of prices.

When consumers increase their borrowing, interest rates tend to decline.

False - interest rates go up as borrowing increases.

How do interest rates affect business activities in our economy?

Lower interest rates allow consumers greater spending power, which increases demand, productivity, and employment.

deflation

a decrease in the general level of prices.

recession

a period in which demand begins to decrease, businesses to rise, and GDP growth slows for two or more quarters of the calendar year.

prosperity

a period in which most people who want to work are working, businesses produce goods and services in record numbers, wages are good, and the rate of GDP growth increases.

price index

a number that compares prices in one year with prices in some earlier base year.

inflation

an increase in the general level of prices.

The phase of the business cycle in which unemployment is higher is _______________________________.

depression

What are the four phases of the business cycle?

prosperity, recession, depression, and recovery.

business cycle

recurring ups and downs of GDP.

recovery

the phase in which unemployment begins to decrease, demand for goods and services increase, and GDP begins to rise again.

depression

a phase marked by a prolonged period of high unemployment, weak consumer sales, and business failures.

What are the main causes of inflation?

when the demand for goods and services is greater than the supply.