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What three ways do households spend their income? What percent of each?
- 84% - personal consumption
- Durable goods: 12%
- Nondurable goods: 30%
- Services: 58%
- Personal taxes - 16%
- >1% - Savings
How many households are in the US?
How much do households receive as wages salaries?
70% or $36.4 billion
How much of their income do the poorest 20% get? Top 20%?
What three parts is a business divided into?
plants, firms, and industries
What are the three legal forms of businesses?
Sole proprietorship, partnerships, and corporations
What are four types of business ventures?
- Government-owned business
- Not for Profit
What are the four phases of the business cycle?
Peak, recession, trough, and expansion
When does contraction occur?
Due to consumer spending and producer supply
What is expansion?
GDP slowly increases as demand for goods slowly rises due to low interest rates
What is the trough?
At the end of a recession, economy is at its lowest point
What is recession?
- Two quarters (6 months) of declining GDP
- Lasts 6-18 months
How does the government operate on each phase of the business cycle?
- Peak: Federal Reserve increase interest rates to slow spending
- Recession: Government intervenes to help those without money/jobs
- Trough: Tax restructuring, work programs, (i.e. Obama's stimulus package)
- Expansion: Increases production and spending
Describe the Great Depression?
Worst trough in US history; 13 million unemployed (25%); 4000 banks close
What is the history of the business cycle?
Appeared during the late 19th century; Adam Smith believed that the interaction of market forces would lead to stability