Chapter 13.4, Problem 1R

To determine

To state: The importance of the terms given.

Explanation of Solution

The significance of the various terms is as explained below:

1. Business fluctuations: The up and down due to the business in an economy are termed as business fluctuations. The fluctuations in the business show the different phases which an economy is facing. So, business fluctuations can be used for analysis and making strategic decisions.

2. Business cycle: The irregular changes in the level of total output that is measured by real GDP is the business cycle. The business cycle is considered important as it can have a significance influence on the consumer demand.

3. Peak: The period of prosperity in the business cycle is said as peak. In peak period, the economic activity is at highest point.

4. Boom: The prosperity period in which economic activities are high is called boom. In this period, the economic activities are high and rapid sales growth can be seen.

5. Contraction: Contraction is that part of business cycle where the economic activities slow down. The contraction period is analyzed by economists for forecasting any future recession.

6. Recession: When the period of contraction lasts longer, it can cause recession. Recession is that period where the economic activities decline. This period causes failure in banks and businesses and real GDP declines.

7. Depression: This is a period where business activities see major slowdown. This is a bad case of recession. In this situation, major loss in business and banking activities can be seen and economy operated below its capacity.

8. Trough: The point in the business cycle, where the economy is at lowest point is termed as trough. In this situation, the real GDP stops going down and it begins to increase gradually. This phase shows coming back of the economic activities.

9. Expansion: When the economic activities begin to increase after trough, this period is called expansion. This period shows an increase in all the economic activities.

10. Recovery: This is a period in which economic activities recover back from the phase of trough. In this phase, economy starts coming back into track by increasing production activities. The phase of the recovery continues till peak is not achieved.

Economics Concept Introduction

Introduction:

Economic fluctuations- There are many factors that influence the economy continuously. The factors like inflation, business affect the economy. Fluctuations in business and other factors affect all the aspects of an economy. These all are related to the GDP and hence are considered important.