1.4 1. What is a business cycle? How do businesses adapt to periods of contraction and expansion? Business cycle- level of economic activity is constantly changing. The upward and downward changes are bus. Cycles. Recession- decline in GDP that lasts for 2 consecutive quarters. Businesses must monitor and react to changing phases. When econ. growing, companies have hard time finding good employees, finding scarces supplies and raw materials. When recession, capacity is greater than the demand. 2. Why is full employment usually defined as a target percentage below 100 percent? Some people choose not to work for personal reasons (school, children), or temp. Unemployed. Therefore 94-96 is full employment 3. What is the difference between demand-pull and cost-push inflation? Demand-pull- demand for goods and services is greater than the supply. Demands prices up. Cost-push inflation- triggered by increases in production costs, such as expenses for materials and wages. Increases prices of final foods or services 1.5 1. What are the two kinds of monetary policy? Fiscal policy- program of taxation and spending. By cutting taxes or by increasing spending, gov. Can stimulate economy. Contractionary policy- fed restricts money supply by selling gov. Securities or raising interest ates. . Lowers inflation and lowers inflation. Expansionary polity- fed increases growth in money supply. Interest rates lower so bus. and consumer spending increases. 2. watWhat fiscal policy tools can the government use to achieve its macroeconomic goals? Taxes- major revenue for gov. 3. What problems can a large national debt present?
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