1.3 How the Economy as a Whole Works
1.3 a. Principle 8: Productivity
Productivity relates the quantity of goods and services produced, and the income generated as a result of that production, to the amount of labor (e.g., hours worked or number of workers) required to produce it. [18]
Example: The United States has the second highest per capita GDP after Norway, it also is second to Norway in terms of productivity. [18]
Productivity [19]
1.3 b. Principle 9: Inflation
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. [20]
Example: The worst inflation ever took place in Hungary at the end of World War II because they were required to pay reparations for the war. The annual inflation rate was more than 13 quadrillion %. During this period, prices in Hungary doubled every 15 hours. [21]
Inflation [22]
1.3 c. Principle 10: Business Cycle
The business cycle is the fluctuation in economic activity that an economy experiences over a period. [23]
Example: During the 2001 recession, the Nasdaq Compositte plunged almost 80% from its 2001 peak to 2002 low. [23]
Business Cycle [24]
