Chapter 2

Question 1

What is expansion?

Answer 1

Expansion occurs when there is a positive growth in real GDP. As there is an increase in real GDP, employment also increase. The price level increase which causes inflation

Question 2

What is a peak

Answer 2

Shows the cycles maximum real GDP and shows the end of expansion and starts to fall. Employment of resources are overused and employment of resources falls. Price level is at its maximum inflation starts to slow and then deflation begins

Question 3

Contraction?

Answer 3

The economy experiences a decrease in real GDP this is known as a recession only if it’s occurring for 6 months or more. There is an increase in unemployment rates and price level increases can slow into disinflation or start to fall deflation

Question 4

Trough?

Answer 4

Represents the cycles minimum level of real GDP also is the end of contraction. There is a widespread amount of unemployment and it’s followed by a new period of expansion. The price leave is at its lowest point and starts to slowly increase

Question 5

What is the long term growth trend in the business cycle?

Answer 5

Overtime potential real GDP is increasing. Usually the most recent trough is higher than the previous.

Question 6

What is potential output?

Answer 6

The level of output possible at “full employment” full employment is also not the same is zero unemployment

Question 7

What is it meant by output gap?

Answer 7

The difference between actual Real GDP and Potential real GDP

Question 8

How can oxtail output be greater than potential output?

Answer 8

Resources are over employed

Unemployment is lower than the natural rate of unemployment