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January 17, 2018 

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ABSTRACTION METHODS: Abstraction is the process of simplifying the complexities of the real world by ignoring (hopefully) unimportant details, especially (for our purposes) while doing economic analysis. Three common methods of actual, real world abstraction used in economic theories are words, graphs, and equations. Words can be misunderstood. Graphs are a little more precise. And equations tend to be the most precise of the three.

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Lesson 12: Business Cycles | Unit 3: Measurement Page: 13 of 26

Topic: Leading <=PAGE BACK | PAGE NEXT=>

Leading economic indicators indicate business-cycle activity 3 or 12 months ahead. If leading indicators decline now, then the economy is likely to decline in 3 to 12 months.
  • Leading indicators are eleven statistics that precede changes in the economy.
  • Three notable leading indicators are stock market prices, the money supply, and consumer confidence.
  • The Composite Index of Leading Indicators, displayed in this chart, combines all eleven into a single number.
  • The Composite Index works better than individual indicators, but they are not perfect. Some declines not followed by a contraction.

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LAW OF DIMINISHING MARGINAL UTILITY

A principle stating that as the quantity of a good consumed increases, eventually each additional unit of the good provides less additional utility--that is, marginal utility decreases. Each subsequent unit of a good is valued less than the previous one. The law of diminishing marginal utility helps to explain the negative slope of the demand curve and the law of demand.

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Today, you are likely to spend a great deal of time browsing through a long list of dot com websites seeking to buy either a looseleaf notebook binder or hand lotion, a big bottle of hand lotion. Be on the lookout for jovial bank tellers.
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Three-forths of the gold mined each year is used to manufacture jewelry.
"Being defeated is only a temporary condition; giving up is what makes it permanent."

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