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1. Business cycles involve fluctuations around full employment real GDP. List and explain at least three of the possible causes. Demand for goods and services is more or less than the firm.

2. If the Great Recession bottomed in 2009, about when would you guess that the next recession would occur?

3. What are the leading economic indicators that might signal the onset of the next recession?

4. Is supply-side economic activity more important than demand-side economic activity when it comes to predicting changes in the direction of the economy?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019

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Related questions

1. Fiscal policy attempts to affect the level of overall spendingin the economy by changes in:
A) the interest rate.
B) the money supply.
C) banking regulations.
D) taxes and spending.


2. Economists have identified several consecutive months of fallingemployment and forecasts for the next few months are for more ofthe same. At what point in the business cycle is the economyapparently located?
A) recession
B) expansion
C) business cycle peak
D) business cycle trough


3. The onset of the Great Depression:
A) was not a shock to anyone since most economists predicted the“roaring 20s” were bound to end in disaster.
B) created a disagreement between the Hoover administration andconventional economists because Hoover wanted the government tointervene much more quickly than most others.
C) came as a considerable shock to the conventional wisdom ofeconomics at that time and opened the door for critiques ofmainstream thought by economists like JM Keynes.
D) was in 1918 at the end of World War I.


4. When economists measure economic growth, they often use:
A) the inflation rate.
B) the unemployment rate.
C) nominal GDP.
D) real GDP.


5. In a typical business cycle, the business cycle peak isimmediately followed by the:
A) recession.
B) business cycle trough.
C) expansion.
D) depression.


6. Suppose an economy experiences rising total output accompaniedby increasing employment, this is generally known as:
A) stagflation.
B) recession.
C) inflation.
D) expansion.


7. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.


8. The alternation between recessions and expansions is known asthe:
A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.


9. A recession in America is typically associated with:
A) a falling unemployment rate.
B) a decrease in the number of people living in poverty.
C) a decrease in the percentage of Americans with healthinsurance.
D) an increase in corporate profits.


10. The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate and to reduce theseverity of recessions.


11. The trade balance is the difference between the value ofthe:
A) trade deficit and the budget deficit.
B) goods and services that one country sells to other countries andthe value of the goods and services it buys in return.
C) exchange rates of two countries that are engaged ininternational trade.
D) national debt and the foreign debt.


12. Increasing the total amount of available productive resourcesis the focus of __________.
A) macroeconomics
B) fiscal policy
C) monetary policy
D) microeconomics


13. The point on a business cycle when real GDP stops rising andbegins falling is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.


14. During a recession, one will often observe:
A) aggregate output rising.
B) unemployment rates will be increasing while aggregate output isfalling.
C) employment rates will be rising.
D) zero unemployment rates.


15. Monetary policy involves:
A) changes in government spending.
B) changes in government tax receipts.
C) changes in the quantity of money.
D) changes in tax rates.


16. The trough of the business cycle:
A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.


17. Which one of the following statements about the U.S. economy isnot accurate?
A) Since the Second World War, aggregate output grew at a ratelower than the average annual growth rate of population.
B) Since the Second World War, aggregate output grew at a ratehigher than the average annual growth rate of population.
C) Since the Second World War, macroeconomic policy has helped makethe economy more stable.
D) Long-run growth per capita is the key to higher wages and arising standard of living.


18. An economic recovery is all of the following except:
A) economic growth of a sustained nature.
B) a short-run increase in aggregate production in aneconomy.
C) a time of increasing employment.
D) the end of the business cycle.


19. Which of the following would NOT be classified as amacroeconomic question?
A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices in the economy as awhole?
C) What determines the overall trade in goods, services, andfinancial assets between the United States and the rest of theworld?
D) What determines the cost to a university or college of offeringa new course?


20. Which of the following statements regarding price level orinflation is correct?
A) Supply and demand can not explain why a particular good orservice becomes more expensive relative to other goods andservices.
B) Inflation affects only the more advanced countries whereas lessadvanced countries face deflation.
C) Prices of most goods and services remained stable during thegreat depression.
D) In general, when the economy is in recession and jobs are hardto find, inflation tends to fall.


21. If wages grew at a 5% rate last year and average prices grew ata 3% rate, then the average worker is:
A) better off.
B) worse off.
C) no better or worse off.
D) unaffected.


22. In an open economy:
A) the exchange rate is determined by the government.
B) specialization in activities with a comparative advantage is notpossible.
C) trade is only beneficial to the relatively larger economy.
D) there is trade in goods, services, or assets with othercountries.


23. Changes in government spending and taxes in an effort to changeoverall spending in an economy is:
A) fiscal policy.
B) monetary policy.
C) investment.
D) the stock market.


24. If an economy is open, this means that:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of itseconomy.
C) it does not trade with other countries.
D) it will experience a drop in its real GDP.


25. Inflation is a situation where:
A) the average price level falls.
B) the average price level increases.
C) the average price level becomes negative.
D) the real price level falls.


26. The topics studied in macroeconomics include:
A) the price of a motorcycle.
B) the wages of engineers.
C) the average price level in the economy.
D) how much ice cream consumers buy.


27. A period of rising real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.


28. The modern tools of macroeconomic policy are:
A) tax policy and antitrust policy.
B) fiscal policy and monetary policy.
C) monetary policy and exchange rate policy.
D) capital policy and labor policy.


29. A “rubber necking” traffic jam is an example of:
A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.


30. The most painful consequence of a recession is:
A) rising unemployment.
B) increasing inflation.
C) increasing aggregate output.
D) higher interest rates.


31. Per capita economic growth is:
A) economic growth per unit of capital.
B) economic growth per person.
C) economic expansion over the business cycle.
D) sustained increase in aggregate output.


32. Keynesian economics stressed:
A) total spending.
B) the self-regulating power of free markets.
C) the long run.
D) that the Depression should run its course to bring down the highcost of living.


33. When an economy's overall production grows faster than itspopulation, this is referred to as:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.


34. Fiscal policy attempts to affect the overall level of spendingin the economy through:
A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.


35. With regard to the aggregate price level, economists generallybelieve:
A) price stability is a desirable goal.
B) inflation is worse than deflation.
C) deflation is worse than inflation.
D) inflation actually benefits most retired people.


36. Recessions are periods when:
A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling.


37. Monetary policy attempts to affect the overall level ofspending in the economy by changes in:
A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.


38. The basic difference between an economic recession and economicdepression is that:
A) the latter is a shorter economic downturn than the former.
B) during recessions output falls faster than duringdepressions.
C) during depressions employment falls faster than duringrecessions.
D) the former is a longer economic downturn than the latter.


39. The central mission of modern macroeconomics is to prevent_____ from happening again.
A) recessions
B) inflation
C) deflation
D) anything like the Great Depression


40. Fiscal policy refers to:
A) the control of interest rates.
B) the control of government spending and taxations.
C) the control of the quantity of money.
D) the control of interest rates and of government spending.


Ques. 1 Read the following comprehension and answer the given questions . (2 x 2= 4 marks)

People often ask economists for predictions about the future of the macroeconomy. Forecasts about the economy’s future, even from experts, are not unlike a baseball writer’s prediction of who will play in the next World Series. The prediction can seem well-reasoned and logical, but it is hardly foolproof. Certain statistical series tend to move in similar ways through all business cycles. Knowledge of these series and their tendencies can provide some insight into future business cycle movements. The Conference Board, a not-for-profit organization, publishes monthly updates of what is called the “index of leading economic indicators.” The index is a weighted average of 10 statistical series that usually lead, or begin turning upward and downward, before the overall economy does. Because not all the components of the index turn before the business cycle hits a peak or a trough, movements in the index are more reliable than the movement in any one of its components. Among the most reliable of the leading indicators is an index of prices for 500 common stocks. Investors want to buy stock shares when their prices are relatively low and sell shares when prices are relatively high. During a recession, stock prices fall due to sluggish sales and profits. Interest rates are relatively low during the last months of recessions because of reduced demand for investment. In choosing between buying bonds and stocks, investors will favor stocks when: (a) stock prices have fallen to a point where there is a strong possibility of future capital gains, and (b) the opportunity cost of buying stocks—the interest rate on bonds—is low. Therefore, prices of common stocks will usually begin to rise during the late stages of a business cycle, before a business expansion begins. As the economy moves near full employment during an expansion, the situation is reversed. Strong demand for consumer goods and investment will drive prices and interest rates upward. At some point, investors sell stocks to realize capital gains and buy bonds, rather than stocks, to take advantage of high interest rates. The downward movement in stock prices will usually begin before a recession begins.

a. Scientists make accurate predictions of the movement of asteroids and comets. Why can’t economists make accurate predictions of business cycle movements?

b. Assume that the U.S. economy is in a recession. Mild weather results in lower demand for energy and a reduction in the price of oil. Investors interpret this as positive news for firms because their costs of production will be lowered. An increase in stock prices results. Will an economic expansion follow?

Question 1 A recession occurs when there is a six consecutive month fall in Question 1 options:

A) real GDP.

B) nominal GDP.

C) the trade balance.

D) the price level.

Question 2 Since 1929, real GDP in the United States has grown at an average annual rate of about Question 2 options:

A) 0.5 percent.

B) 1 percent.

C) 3 percent.

D) 7.5 percent.

Question 3 Suppose that after reading a two-year low, the index of leading economic indicators rises for several months. Which of the following economic events will likely follow? Question 3 options:

A) A recession.

B) Severe inflation.

C) Increased production.

D) Reduced investment.

Question 4 Which of the following people would be officially counted as unemployed? Question 4 options:

A) A person who works only 5 hours per week for pay.

B) A full-time college student who chooses not to have a paying job.

C) A family member who works 20 hours per week in the family business without pay.

D) A jobless high-school graduate who is actively looking for work.

Question 5 Assume a country's population (age 16 and over) is 1 million people. What is the unemployment rate if there are 750,000 people in the labor force, 60,000 of whom are unemployed? Question 5 options:

A) 6%.

B) 8%.

C) 12.5%

D) 16.7%

Question 6 If a sizable number of workers were switched from full-time to half time employment, then the official unemployment rate would Question 6 options:

A) rise.

B) fall.

C) remain unchanged.

D) react unpredictably.

Question 7 Which of the following people would be classified as structurally unemployed? Question 7 options:

A) Computer programmers who lost their jobs because of a recession.

B) Construction workers who are on temporary layoff.

C) Discouraged workers who have given up looking for work.

D) Textile workers who lost their jobs because of new foreign competition.

Question 8 The economy is fully employed when there is no :

A) seasonal unemployment.

B) frictional unemployment.

C) structrual unemployment.

D) cyclical unemployment.

Question 9 The GDP gap measures the nation's monetary losses of real goods and services from :

A) operating at less than full employment.

B) discouraged workers who have stopped searching for employment. C) murders, suicides, and other sociological impacts of sustained unemployment.

D) seasonal and frictional unemployment.

Question 10 In the United States, the unemployment rate for blacks is :

A) roughly the same as the unemployment rate for whites.

B) about 1–2 percentage points higher than the unemployment rate for whites.
C) more than twice the unemployment rate for whites.

D) between 3 and 4 times the unemployment rate for whites.

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