Unit 12

Question 1

What is the business cycle?

Answer 1

The economy fluctuates between growth and contraction in a regular cycle

Question 2

Put the business cycle in the right order from 1-4.

1. Trough 2.Peak 3.Contraction 4.Expansion

Answer 2

■ Expansion
■ Peak
■ Contraction
■ Trough

Question 3

What is the expansion phase of the business cycle?

Answer 3

Expansion is when the economy reaches the prior peak and continues to grow.

Question 4

What is a benefit of understanding the business cycle?

Answer 4

It is part of providing good advice and recommendations to customers

Question 5

Some economist differentiate the expansion phase into two parts. What are these 2 parts called?

Answer 5

recovery and expansion

Question 6

What phase of the business cycle are the following associated with:
■ rising property values
■ increased consumer demand for goods and services

Answer 6

Expansion

Question 7

What is another name for the peak phase in a business cycle?

Answer 7

Peak or prosperity

Question 8

What is recovery phase in the business cycle?

Answer 8

Recovery is the period of growth from the trough to the prior peak

Question 9

What phase of the business cycle are the following associated with:
■ rising numbers of bankruptcies and bond defaults
■ falling stock prices

Answer 9

Contraction

Question 10

True or False

A characteristic of the Prosperity phase is very high unemployment.

Answer 10

False

There is very low unemployment

Question 11

What phase of the business cycle are the following associated with:
■ a slowdown in inflation,
■ a slowing of GDP, and
■ steady consumer demand.

Answer 11

Peak

Question 12

Which state of the business cycle is characterized by rising consumer demand and higher wages?
A. Contraction B. Expansion C. Recession D. Trough

Answer 12

B

Question 13

Economic data shows that the gross domestic product (GDP) has been declining steadily over the past two quarters. This would suggest 
A. expansion. 
B. inflation. 
C. a depression. 
D. a recession.

Answer 13

D

Question 14

Inflation is most commonly found during which phase of the business cycle?
A. Expansion B. Peak C. Contraction D. Trough

Answer 14

A

Question 15

What is the relationship between the economy and inflation taking, when there is contraction of the economy ?

Answer 15

In normal economic cycles, we tend to see inflation be very low, or even deflation, when the economy is contracting.

Question 16

During what phase of the economic cycle does most of the existing productive capacity is already in use (all the workers are working and all the factories are producing). Therefore, as demand increases the prices tend to rise?

Answer 16

an expansion

Question 17

True or False

A trough has high unemployment

Answer 17

True

Question 18

True or False
■ decreasing inventories
■ decreasing GDP.
Are characteristics of a contraction

Answer 18

True and False
■ rising inventories
■ decreasing GDP

Question 19

Describe the expansion phase characteristics as it pertains to production, stock prices and GDP

Answer 19

■ increases in industrial production,
■ rising stock prices and
■ increasing GDP.

Question 20

What is a recession?

Answer 20

When the economy enters an extended period of contraction that continues for six months or longer

Question 21

What is an example of a severe recession in American history?

Answer 21

as in the Great Recession of 2008

Question 22

What phase of the business cycle is associated with higher consumer debt?

Answer 22

Contraction

Question 23

What is a depression?

Answer 23

If a contraction continues for 18 months

Question 24

As it relates to GDP, demand and inflation . Describe a trough.

Answer 24

■ flat GDP
■ low inflation
■ low, but not decreasing, consumer demand.

Question 25

Give an example of a time period of a mild recession in American history

Answer 25

as occurred in the early 1990s

Question 26

How did the great depression come to be?

Answer 26

The recession of 2009 began in the fourth quarter of 2008 with a GDP reading of -2.75%. The first three quarters of 2009, GOP readings were -3.29%, -3.92%, and -3.05%. It ended within two months .

Question 27

True or False

Depressions occur frequently

Answer 27

False

Depressions rarely occur

Question 28

The recession of the early 1990s began in July of 1990 and lasted about eight months. GDP for the first three quarters of 1991 were -0.95%, -0.54, and -0.10, respectively. This was seen as a (severe/mild )recession

Answer 28

mild