M1-Economic and Business Cycles

Question 1

Remember the factors that shift aggregate demand as TWICE Government:

Answer 1

Taxes
Wealth
Interest rates
Consumer confidence
Exchange rates
Government spending

Question 2

The trough of a business cycle is an economic low point with no positive indicators for the future. It is characterized by unused productive capacity and an unwillingness to risk new investments. (true or false)

Answer 2

true

Question 3

During a recession, potential output (real GDP) will exceed actual output (real GDP). (true or false)

Answer 3

true

Question 4

A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply. (true or false)

Answer 4

true

Question 5

During EXPANSION, real GDP is rising and unemployment is ________.

Answer 5

falling

Question 6

Expansionary fiscal policy involves increasing government purchases and/or decreasing taxes. Both increases in government spending and decreases in taxes cause the aggregate demand curve to shift right and thus cause real GDP (output) to increase. (true or false)

Answer 6

true

Question 7

The sequence of a typical business cycle includes an expansionary phase, a peak of economic activity, a contractionary phase, and a trough of economic activity. (true or false)

Answer 7

true

Question 8

A tax cut shifts the aggregate demand curve to the right causing the price level and therefore the inflation rate to rise. (true or false)

Answer 8

true

Question 9

If the dollar gains in value, net exports will suffer as US goods become more expensive overseas; hence aggregate demand will decrease. The supply of foreign goods domestically should increase as imports become cheaper. (true or false)

Answer 9

true

Question 10

The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level. (true or false)

Answer 10

true

Question 11

Real GDP per capita is real GDP divided by population. Real GDP per capita is typically used to compare standards of living across countries or across time. By dividing real GDP by population, this measure adjusts for differences in the size of countries and for differences in population over time. (true or false)

Answer 11

true

Question 12

Variations in business cycle are attributed or described in terms of how long they last (duration) and the degree of peak or trough (intensity). (true or false)

Answer 12

true