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Honors Economics
Chapter 5 Study Organizer
1. Understand the relationship between changes in real GDP and in the rate of unemployment.
2. Identify the four phases of a business cycle and explain the change in real GDP that occurs in each
phase.
3. Understand the relationship between changes in total spending and changes in the levels of aggregate
output, employment, and income in an economy.
4. Compare the size and stability of spending by households, businesses, government units, and foreign
buyers.
5. Identify the factors that influence the levels of spending by households and businesses.
6. Explain the effect of household borrowing, transfer payments, saving, and taxes on household spending.
7. Identify the major causes of fluctuations in investment spending.
8. Understand the role of financial institutions in channeling funds from savers to borrowers.
9. Explain how the saving-borrowing relationship can cause the economy to expand or contract.
10. Understand the influence of government purchases of goods and services, transfer payments and taxes
on the spending stream.
11. Explain how the tax-government expenditures relationship can cause the economy to expand or contract.
12. Distinguish among exports, imports, and net exports, and understand the influence of U.S. exports and
imports on the spending stream.
13. Identify the major injections into and leakages from the spending stream.
14. Explain how the relationship between injections and leakages cause economic activity to expand,
contract, or stay the same.
15. Differentiate between income-determined and nonincome-determined spending and illustrate the
difference by means of a circular flow model.
16. Understand how changes in nonincome-determined spending cause larger change in output,
employment, and income.
17. Be able to calculate the multiplier effect, or the total change in output and income that results from an
initial change in nonincome determined spending.
18. Explain the relationship between total spending and demand-pull inflation when the economy is at or
near full employment.
19. Understand how expectations can lead to recessions and inflation.
20. Explain how fiscal policy and monetary policy are designed to affect total spending.