Business Cycle

Question 1

What are the four phases of the business cycle?

Answer 1

Peak, trough, expansion/upswing, recession/downswing

Question 2

How does the peak phase affect the economy?

Answer 2

–> All resources are used efficiently
–> High demand, prices of goods and services
–> Cost of production increased
–> Consumer confidence increased

Question 3

How does the trough phase affect the economy?

Answer 3

–> Income and demand decreased
–> Increased unemployment
–> Higher saving
–> Consumer confidence decreased

Question 4

How does the contraction phase affect the economy?

Answer 4

–> Demand and production decreased
–> Investment decreased
–> Economy slows
–> Decreased economic growth
–> Increased unemployment
–> Decreased inflation
–> Decreased money in the circular flow
–> Decreased interest rates

Question 5

How does the expansion phase affect the economy?

Answer 5

–> Increased production and investment
–> Economic growth
–> Increased interest rates
–> Increased demand
–> Decreased unemployment
–> Increased inflation
–> Increased money in the circular flow