Business Cycles and Indicators

Question 1

Define “business cycles.”

Answer 1

Cumulative fluctuations in aggregate real gross domestic product that last at least two years.

Question 2

Identify and describe the elements of business cycles.

Answer 2

• 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: period during which aggregate output is increasing.
• Economic contraction or recessionary period: periods during which aggregate output is decreasing.

Question 3

Define “leading indicators of business cycles.”

Answer 3

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

Question 4

Define “lagging indicators of business cycles.”

Answer 4

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

Question 5

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

Answer 5

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

Question 6

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

Answer 6

• Change in labor cost
• Ratio of inventory to sales
• Duration of unemployment
• Commercial loans outstanding
• Ratio of consumer installment credit to personal income