CHAPTER ANALYSIS

What is the main purpose of this chapter? as full employment brings economic security, overall stable price level increases another form of economic security.

Aggregate amounts of economic activity in the U.S. have increased markedly over time, even on a per capita basis, indicating economic growth. Short-term fluctuations in the in the level of economic activity also occur.

What are the key questions that the author is addressing in your section of this chapter?
Inflation
What is the purpose of a price-level index?
A price-level index allows us to compare prices paid for goods and services over time by creating a measure of how many dollars it would take to maintain a constant purchasing power over time.
Who are the winner and losers during during inflation?
Inflation generally hurts creditors and pensions; debtors generally benefit from inflation.
Can wage earners avoid the consequences of inflation?
Wage earners attempt to keep pace with inflation by demanding higher wages each year or by indexing their annual wage to inflation

Economic Flunctuations
What are the short-term economic fluctuations?
Business Cycles are short term fluctuations in the amount of economic activity, relative to the long-term growth trend in output.
What are the four stages of a business cycle?
The four stages of a business cycle are expansion, peak, contraction, and trough.
What is the difference between between a recession and a depression?
Recessions occur during the contraction phase of a business cycle. Severe long-term recessions are called depressions.

What are the key terms we need to understand in your section of this chapter?
Inflation-a rise in the overall price-level, which decreases the purchasing power of money.
Deflation-a decrease in the overall price level, which increases the purchasing power of money. relative price-the