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 lagging indicators (of the business cycle).

Answer 2

1. Changes in labor cost
2. Ratio of inventory to sales
3. Duration of unemployment
4. Commercial loans outstanding
5. Ratio of consumer installment credit to personal income

Question 3

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

Answer 3

1. Consumer expectations
2. Initial claims for unemployment
3. Weekly manufacturing hours
4. Stock prices
5. Building permits
6. New orders for consumer goods
7. Real money supply

Question 4

Identify and describe the elements of business cycles.

Answer 4

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

Question 5

Define “business cycle”.

Answer 5

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

Question 6

Define “leading indicators of business cycles”.

Answer 6

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