Business Cycles

Question 1

Define “lagging indicators of business cycles”.

Answer 1

Measures of economic activity associated with changes that occur after changes in the business cycle.

Question 2

Give examples of leading indicators (of the business cycle).

Answer 2

Consumer expectations;
Initial claims for unemployment;
Weekly manufacturing hours;
Stock prices;
Building permits;
New orders for consumer goods;
Real money supply.

Question 3

Give examples of lagging indicators (of the business cycle).

Answer 3

Changes in labor cost;
Ratio of inventory to sales;
Duration of unemployment;
Commercial loans outstanding;
Ratio of consumer installment credit to personal income.

Question 4

Define “business cycles”.

Answer 4

Cumulative fluctuations in aggregate real GDP which last at least two years.

Question 5

Define “leading indicators of business cycles”.

Answer 5

Measures of economic activity that occurs before a change in the business cycle.

Question 6

Identify and describe the elements of business cycles.

Answer 6

Peak: Point that marks the end of rising aggregate output and the beginning of a decline in output;
Trough: Point that marks the end of a decline in aggregate output and the beginning of an increase in output;
Economic Expansion or Expansionary Period: Periods during which aggregate output is increasing;
Economic Contraction or Recessionary Period: Periods during which aggregate output is decreasing.