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INCOME ELASTICITY OF DEMAND: The relative response of a change in demand to a relative change in income. More specifically the income elasticity of demand can be defined as the percentage change in demand due to a percentage change in buyers' income. The income elasticity of demand quantitatively identifies the theoretical relationship between income and demand.

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Lesson 12: Business Cycles | Unit 2: A Simple Cycle Page: 11 of 26

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  • A business cycle as the pattern of expanding and contracting economic activity relative to the long-run, full-employment trend.
  • A business cycle contraction, or recession, which is officially designated as at least six months of declining economic activity.
  • A business cycle trough, which is turning point between a contraction and an expansion.
  • A business cycle expansion, which is a period of increasing aggregate economic activity, and the early recovery part of an expansion.
  • A business cycle peak, which is the turning point between an expansion and a contraction.

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INDUCED INVESTMENT

Business investment expenditures that depend on income or production (especially national income and gross domestic product). That is, changes in income induce changes in investment. Induced investment reflects the observation that the business sector is inclined to reinvest profits (boosted by a growing economy) in capital goods. It is measured by the marginal propensity to invest (MPI) and is reflected by the positive slope of investment line. The alternative to induced investment is autonomous investment, which does not depend on income.

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Today, you are likely to spend a great deal of time touring the new suburban shopping complex trying to buy either a set of luggage with wheels or a birthday gift for your aunt. Be on the lookout for fairy dust that tastes like salt.
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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