Module 4 Review Guide
The sum of the production of goods and the supply of services in a given country is defined by the country's Gross National Product, or GNP. Many factors can affect the gross national product. Here are five major ones: 1. Population expansion or contraction - population growth can increase both GNP and per capita GNP. 2. Entrepreneurism - all the inventions associated with computers and other technological developments, have fueled a huge expansion in the GNP. 3. Trade – global trading increases GNP 4. War - Wars such as World War II destroyed much of Europe's economic infrastructure and drove down the GNP of the countries involved. However, for countries like the U.S. and much of Western Europe, which today supply military arms, war can have a positive effect on the GNP. 5. Natural Resources - The discovery of oil is a classic case of natural resources driving up the GNP of a region such as the Middle-East. Similarly, in rain forests around the world, harvesting trees has had a positive impact on the GNP. A business cycle is similar to the movement of a roller coaster. The four phases of the business cycle are (1) expansion, like the upward climb of the roller coaster. During the expansion phase, Gross Domestic Product, or GDP, is increasing. Usually, this also means that the rate of inflation is increasing while the unemployment rate is decreasing. The momentary pause at the summit is the (2) peak, where production reaches the highest current level. This is a time when the inflation rate is at it’s highest. Then comes the (3) contraction with decreasing economic activity, similar to the downslide of your cart. During a contraction, unemployment rises while inflation falls. Finally, the (4) trough is the lowest point of the roller coaster ride and of the business cycle. The trough is the transition from a contraction to an expansion phase and