Econ 201 Business Cycles – Flashcards

Business cycles can be described as A) fluctuations around a long-term growth trend B) changes in economic activity due to natural causes C) increases in the level of business activity over an extended period of time D) changes in business activity due to wars

The statistical indicators of business cycle changes contain A) leading indicators B) lagging indicators C) roughly coincident indicators D) all of the above

An example of an external force in business fluctuations is A) falling interest rates due to lagging demand in a contraction B) a devaluation in the nation's currency C) variations in inventories D) the lag between price changes and cost changes

The highest and lowest levels of economic activity during the business cycle are called A) expansions and contractions B) nadirs and zeniths C) peaks and troughs D) leading and lagging indicators

Which of the following best expresses underconsumption theory as a cause of business cycles? A) Capital goods production encroaches on consumer goods production. B) Some income is saved instead of being used to purchase goods immediately. C) Some want more goods than the economy is capable of producing; therefore, they must cut their consumption expectations. D) The economy provides insufficient purchasing power to buy back the goods it produces.

A recession is defined as a period when the A) real GDP increases less than 3 percent B) real GDP falls by at least 5 percent in a single quarter C) nominal GDP declines for two consecutive quarters D) real GDP falls for two consecutive quarters

Recurring fluctuations in business activity over the course of one year are known as A) seasonal variations B) random fluctuations C) the trend D) the business cycle

Economic indexes whose changes generally precede the peaks and troughs of business cycles are called A) causal indicators B) leading indicators C) roughly coincident indicators D) lagging indicators

A noticeable drop in the level of business activity is known as a A) recession B) collapse C) contraction D) lagging indicator

The long-run average change in real GDP is known as A) potential GDP B) potential output C) long-run trend D) all of the above

According to monetary theories of the business cycle, fluctuations are A) not caused by the banking system B) occur more often in countries with active central banks C) occur more often in countries that depend on agriculture D) occur more often in countries that do not print their own money

Monetary theorists suggest that it is necessary to carefully control growth in which of the following to smooth business cycles? A) money supply B) government spending C) tax rates D) consumer savings

Which of the following statements concerning major cycles is incorrect? A) Major cycles are characterized by wide fluctuations in business activity. B) The longest cycle in the United States was a period of recession. C) Severe recessions in major cycles result in widespread unemployment. D) During major cycles, economic activity rises and falls relative to the long-term growth trend.

According to the rational expectations theory, if people use information to make rational decisions and expect government to attempt to smooth business cycles A) firms and households' actions can make government policy less powerful B) firms and households' actions can make government policy work better C) easy expansion of money supply eventually leads to excess productive capacity D) limited expansion of the money supply eventually leads to excess productive capacity