B Describe how resource use, housing sector acticity, and external trade sector activity vary as an economy moves through the business cycle

Question 1

Resource use fluctuation

Answer 1

Inventories and growth; normal steady levels

When expanstion approaches peak: Sales growth slows, unsold inventories accumulate; +inventory-sales ratio above normal

Firm reaction to Inv-Sales ratio > Normal: Reduced production.

Look at inventory-sales ratio AND GDP growth

when contraction reaches trough: Prod. levels are reduced to meet low sales demand but inventories become depleted more quickly once sales growth begins to accel; inv. - sales ratio decreases below normal level

As expansion persists, firms will inc. prod. levels by using existing capital more or less intensively. Expansion> +PPE
contraction> -maintenance, -replacement of machines near the end of its useful life

Question 2

Housing Sector Activity

Answer 2

Mortgage rates: low % +home buying and construction, high % oppositve

Houseing Costs Relative to Income: Income high relative home costs, +home buying, + construction

Speculative Activity: Purchases based on future expectations

Demographic Factors: 25-40 yr olds +relation to housing sector activity. China: Rural areas to cities

Question 3

External Trade Sector Activity

Answer 3

*Most important factors determining a level of a countrys importans and exports are domestic GDP growth, GDP growth of trading partners, currency exchange rates

+foreign income = +domestic exports
+Domestic income = +foreign imports

Question 4

External Trade Sector Activity

Answer 4

*Most important factors determining a level of a countrys importans and exports are domestic GDP growth, GDP growth of trading partners, currency exchange rates

+foreign income = +domestic exports
+Domestic income = +foreign imports