Chapter 05 Economics Business Cycle

Question 1

Perfect Pure Competiton

Answer 1

In a perfectly competitive market individual firm can influence the market price of product nor shifts market supply sufficiently. Produce greater variety of products at higher cost responsive to market conditions

Question 2

Monopolistic Competion

Answer 2

relatively large groups of sellers who produce differentiated products.

Question 3

A government is most likely to reduce taxes on investment when

Answer 3

capital spending is expected to unusually low.

Question 4

An increase in the personal income tax will tend to cause

Answer 4

GDP to fall unemployment to rise.

An increase in personal income tax will take money out of the hands of consumers and lead to reduction in economic activity.

Question 5

Business Cycle in occurance

Answer 5

exapansion, peak, contraction, trough, recovery

Question 6

a period when which GDP is rising and unemployment is falling is called an

Answer 6

Expansion

Question 7

Expansionary phase

Answer 7

is characterized by rising economy activity/ profits rise demand and good and service increase. expand workforce

Question 8

Peak

Answer 8

at the highest level, leading to higher cost and higher overall price levels, shortage

Question 9

Contractionary phase

Answer 9

falling economic activity and growth. profit is falling

Question 10

Trough

Answer 10

the lowest level significant excess production capacity. unwillingness to risk investment.

Question 11

Recovery phase

Answer 11

economic activity begins to increase, firms profit stabilize.

Question 12

recession

Answer 12

potential output will exceed actual output, unemployment high, decline consumer purchase, falling stock prices, rising inventory

Question 13

leading indicators

Answer 13

new unemployment claims
building permits for residence
length of work week
money supply

Question 14

Monopolistic

Answer 14

many people different products
few barriers
highly elastic downward sloping demand curve

Question 15

Oligopoly

Answer 15

Few firms
significant barriers to entry
differentiated products
fixed prices
kinked demand curves

Question 16

natural monopoly

Answer 16

economic and technical conditions permit the only one efficient supplier.

Question 17

what is expansionary fiscal policy

Answer 17

involves increasing government purchases and or decreasing taxes/ both increases and decreases in taxes cause the aggregate demand curve to shift right and cause gdp to increase

Question 18

Tools to control Money supply. Open Market Operations

Answer 18

1. Selling gvmt decreases money supply
2. Buying increases the money supply and contract

Question 19

Tools to Control MS - Discount Rate

Answer 19

increase interest rates borrowing reduces money supply
decrease interest rates borrowing increases money supply

Question 20

required reserve ratio

Answer 20

higher required reserve ratio decreases money supply
lower required reserve increases money supply

Question 21

Expansionary fiscal policy

Answer 21

entails more government spending and or reduction taxes.
put money into the hands of consumers.
spending increases
economic growth

Question 22

Contractionary

Answer 22

reduce inflation
reduce government spending