Chapter 7: Problem 12

Define each of the following terms: a. Contraction b. Business cycle c. Trough d. Disposable income e. Net domestic product

Short Answer

Expert verified

a. Contraction is a phase in the business cycle where the economy is in decline. b. Business Cycle is the fluctuations in economic activity over time. c. Trough is the lowest phase of a business cycle. d. Disposable Income is the net income available for personal expenses after paying taxes. e. Net Domestic Product (NDP) is the value of all goods and services produced within an economy over a specified period, minus depreciation.

Step by step solution

Define Contraction

Contraction is a phase in the business cycle where the economy as a whole is in decline. This is typically accompanied by a fall in GDP, an increase in unemployment, and a decline in the inflation rate.

Define Business Cycle

A Business Cycle is often defined as the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, or periods of economic decline.

Define Trough

Trough is a stage in the economy's business cycle that marks the end of a period of declining business activity and the transition to an expansion. This is the lowest phase of a business cycle.

Define Disposable Income

Disposable income is the amount of money that households have available for spending and saving after income taxes have been accounted for. It's essentially the net income available to an individual for their personal expenses.

Define Net Domestic Product

Net Domestic Product (NDP) equals the gross domestic product (GDP) minus depreciation on a country's capital goods. It's a measure of the value of all goods and services produced within an economy over a specified period, typically a year, minus the value of depreciation.