Business Cycles and Indicators

Question 1

What is a business cycle?

Answer 1

Cumulative fluctuations up and down in aggregate real gross domestic product.

Question 2

How is business cycles measured?

Answer 2

Measured in real GDP

Question 3

T/F: Business cycle ups and down recur over time?

Answer 3

TRUE- There is not constant pattern. They have different affects on different industries

Question 4

When a business cycle hits its top point of the cycle, what is that called?

Answer 4

Peak, and the bottom is a trough

expansionary period

Rececessionary period

Question 5

How is a recession defined?

Answer 5

Unofficially quantitative definition:

• Two or more quarters of negative change in real GDP
• Downturn in real GDP of 10% or less

Question 6

How is a depression defined?

Answer 6

Decline in real GDP exceeding 10%

Decline in real GDP lasting 2 or more years

Question 7

What are the causes of a business cycle/

Answer 7

Changes in business cycle result from inter-related factors

• Changes in interest rates (seem to be the primary cause) because it affects PPE, Investments, makes it harder to buy these types of things.
• changes in taxes

Question 8

What are indicators of business cycle?

Answer 8

Changes in specific measures of economic activity associated with changes in overall business cycles

Indicators

• Leading economic indicators- change in measure that occurs before changes in the business cycle
• consumer expectations
• Initial unemployment claims
• Weekly manufacturing hours
• Stock prices
• Building permits issued
• New orders for consumer goods
• Level of real money supply
• Lagging economic indicator- changes in measure that occur after changes in the business cycle
• Changes in labor cost per unit of output
• Relationship between inventory and sales
• Length of unemployment
• Amount of commercial loans outstanding