Deck 13: Business Cycles

Question 1

Aggregate supply shocks can be either temporary or permanent.Both types can cause deviations from the trend output.

Answer 1

True

Question 2

Procyclical is a variable that is above trend when GDP is above trend.

Answer 2

True

Question 3

A cyclical peak or trough occurs when GDP

A)starts to deviate from a trend path.
B)moves in coordinated ways.
C)increases and decrease in a predictable manner over the economic cycle.
D)is at the maximum deviation from the trend path in a business cycle.

Answer 3

D

Question 4

Which of the following statements about economic fluctuations is true?

A)None of these answers.
B)A depression is a mild recession.
C)A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.
D)A recession is when output rises above the natural rate of output.
E)Economic fluctuations have been termed the "business cycle" because the movements in output are regular and predictable.

Question 5

Economists refer to fluctuations in output as the "business cycle" because movements in output are irregular and unpredictable.

Question 6

Business cycles have fairly regular time gaps between peaks and troughs.

Question 7

The amplitude measures the difference between start and end of the business cycle.

Question 8

Recessions do not last forever because

A)workers get tired of being unemployed.
B)firms eventually have incentives to increase employment and produce more output.
C)government steps in and boosts spending back to long-run levels.
D)central banks have control over the money supply.

Question 9

Which of the following best apply to when a peak occurs in a business cycle?

A)Inflation is falling.
B)Unemployment is at its lowest.
C)GDP growth is at its highest in the business cycle.
D)Interest rates are low.

Question 10

Marietjie maintains that she can predict when the economy is going to move up or down in a business cycle.In fact,

A)most economists can predict the business cycle.
B)the business cycle is quite regular, with a new phase beginning every 24 months.
C)business cycles are irregular and unpredictable in the short run.
D)only the World Bank can predict moves in the business cycle.

Question 11

A recession occurs

A)when economic growth declines.
B)when there is negative growth in the GDP.
C)immediately after the peak.
D)All of the above are true.

Question 12

If economic growth declines then it must be true that the economy is in a recession.

Question 13

In the New Classical model, when output is above trend, unemployment is countercyclical and employment will be above trend and so be procyclical.Inflation will be procyclical, but real wages will be countercyclical because as output rises real wages fall.

Question 14

Over the last 50 years, SA real GDP has grown at about 5 per cent per year.

Question 15

A technical definition gives a recession occurring after six successive months of negative economic growth.

Question 16

Which technically correctly describes a recession?

A)A period of declining real incomes and rising unemployment.
B)Occurring after six successive months of negative economic growth.
C)Occurring after two successive quarters of negative economic growth.
D)Any time when the rate of economic growth falls.

Question 17

Figure 1.

Referring to Figure 1, the amplitude in the early 1970s was about:

A)2
B)7.5
C)9.5
D)2 years
E)4 years

Question 18

If you and your friends are still looking for a job eighteen months after graduation, even after lowering your wage expectations, you are probably in the _________ phase of the business cycle.

A)recession
B)peak
C)boom
D)recovery

Question 19

If trends do not exist then policy measures designed to reduce deviations from trend are misguided.

Question 20

A severe and prolonged recessionary phase of a business cycle is sometimes described as

A)an inverted peak.
B)a trough.
C)a recession.
D)a depression.

Question 21

If GDP was above trend for an 18-month period we would expect the following variables to change.

A)Unemployment to rise, inflation to fall, money supply to expand and real wages to rise.
B)Unemployment to rise, inflation to fall, money supply to contract and real wages to fall.
C)Unemployment to fall, inflation to rise, money supply to contract and real wages to fall.
D)Unemployment to fall, inflation to rise, money supply to expand and real wages to rise.

Question 22

Use the information in table below to calculate the mean growth rate. $\begin{array}{|l|l|}\hline \text { Time series data collected over } & 30 \text { years } \\\hline \text { Highest Peak } & 7 \% \\\hline \text { Next Trough } & -2 \% \\\hline \text { Number of peaks and troughs } & 4 \\\hline \text { Sum of annual growth rates } & 75 \\\hline \text { Sum of annual positive growth rates } & 90 \\\hline\end{array}$

A)2.5%
B)3%
C)5
D)9

Question 23

If firms face a weak demand they are more likely to

A)buy more raw materials and semi-finished goods.
B)increase output.
C)reduce their workforce.
D)invest in new equipment.

Question 24

Figure 1.

Referring to Figure 1 in which year did the economy stagnate with little or no growth?

A)1964
B)1991
C)1992
D)2009

Question 25

Which would cause SA firms to think about cutting back production?

A)A fall in real wages.
B)Improvement in the South African economy.
C)Build-up of stock levels.
D)Ease of credit controls.

Question 26

Which of the following statements is true?

A)Employment is procyclical and unemployment is countercyclical.
B)Real wages and unemployment are both procyclical.
C)Inflation and unemployment are both procyclical.
D)Real wages and unemployment are both countercyclical.

Question 27

Figure 1.

Referring to Figure 1 there was a period of economic growth between which years?

A)1991 to 1994
B)1991 to just beyond 2007
C)1992 to 1994
D)1992 to just beyond 2007

Question 28

Which of the following is true of GDP time series data?

A)GDP is stationary data staying constant over time.
B)GDP is nonstationary data rising over time.
C)GDP is nonstationary data rising and falling over time, but on average is constant.
D)GDP is stationary data rising and falling over time, but on average is constant.

Question 29

Which is an external source affecting the business cycle?

A)Changes in economic activity abroad.
B)Unpredictable events like war and hazards.
C)Changes in exchange rates.
D)All of the above.

Question 30

The trend in GDP is generally

A)upwards.
B)constant.
C)downwards.
D)fluctuates.

Question 31

An inflation fallacy is

A)when prices are falling and the economy is growing.
B)that inflation directly lowers living standards.
C)people think that prices are rising much higher than they actually are.
D)prices always deflate in a recession.

Question 32

If data exhibits a trend that is stochastic then

A)policy measures can be applied when it deviates from trend.
B)policy measures can be applied when it is below trend.
C)policy measures might be applied that are unnecessary and possibly distorting.
D)policy measures can be applied when it is above trend.

Question 33

Which aggregate supply shock is most likely to have a permanent effect?

A)The development of new technologies.
B)War.
C)Natural disasters.
D)All of the above.

Question 34

Deterministic trends are

A)where variables change by some random amount in each time period.
B)always constant and dependent of time for the series being analyzed.
C)constant, positive or negative independent of time for the series being analyzed.
D)always positive.

Question 35

Figure 1.

Referring to Figure 1, between 1988 and 1991 the economy

A)contracted.
B)was in a recession.
C)grew overall.
D)was mostly above the mean growth rate of 2.4%.

Question 36

Which business cycle model is based around the concept of anticipated and unanticipated price changes?

A)The real business cycle.
B)The supply side new classical model.
C)The demand side Keynesian model.
D)None of these.

Question 37

Which is not a characteristic of cyclical variables?

A)Coincident indicator.
B)Lagging indicator.
C)Fallacy indicator.
D)Leading indicator.

Question 38

Which is most sensitive to concerns about the future growth of the economy?

A)Spending on food.
B)Spending on rent.
C)Spending on durable goods.
D)Spending of fuel.

Question 39

Figure 1.

Referring to Figure 1, the number of recessions shown in the time series was:

A)4
B)9
C)13
D)15

Question 40

Procyclical refers to

A)a variable that is above trend when GDP is above trend.
B)a variable that is equal to the GDP trend.
C)the economy is growing above trend.
D)a variable is that is below trend when GDP is above trend.

Question 41

In the real business cycle,

A)employment, labour productivity and real wages are procyclical.
B)employment, labour productivity and real wages are countercyclical.
C)employment, inflation are procyclical, but real wages are countercyclical.
D)unemployment, labour productivity and real wages are procyclical.

Question 42

According to the new classical model, what effects will a rise in aggregate demand have on a county's GDP?

Question 43

Comment of the nature of economic fluctuations in terms of their predictability.

Question 44

What is meant by co-movement, and what are the relationships between key variables and GDP?

Question 45

What are the main causes of changes in the business cycle?

Question 46

In what way does the real business cycle model differ from other models?

Question 47

Economic forecasting is not perfect,

A)so this means that any attempt to do so should be abandoned.
B)but this does not mean no attempt should be made to make forecasts.
C)because the information on which it is based is always inaccurate.
D)it is only based on normative information not positive information.

Question 48

In the real business cycle model, the causes of business cycles are

A)sticky wages and prices.
B)technology shocks.
C)unanticipated price level changes.
D)changes to aggregate demand.

Question 49

What are the main characteristics of the business cycle?

Question 50

What is the difference between a recession and a depression?

Question 51

What is meant by a leading indicator? Comment on the OECD data below showing an index of composite indicators for the OECD area.

Question 52

Name two macroeconomic variables that decline when the economy goes into a recession.Name one macroeconomic variable that rises during a recession.

Question 53

Which business cycle model believes that policy measures designed to reduce deviations from trend are misguided?

A)The real business cycle.
B)The supply side new classical model.
C)The demand side Keynesian model.
D)The supply side Keynesian model.

Question 54

Which consumer purchases are more volatile over the business cycle?