Deck 45: Business Cycles and Unemployment

Question 1

Whats defention of terms:
-crisis

Answer 1

the decline of profits in a capitalist system

Question 2

Whats defention of terms:
-expectations

Answer 2

what people think will happen

Question 3

Whats defention of terms:
-profit squeeze

Answer 3

the declining growth of demand and the rising growth of costs, which create the nutcracker effect that lowers profits; the lower profits lead to less investment

Question 4

Whats defention of terms:
-prosperity

Question 5

Whats defention of terms:
-real business cycle theory

Question 6

Whats defention of terms:
-recession

Question 7

Whats defention of terms:
-recovery

Question 8

Compare and contrast the conservative and progressive views of the business cycle, particularly the nature and costs of unemployment.
-What are sources of disturbances to the economy according to conservative economists? Why is there unemployment?

Question 9

Compare and contrast the conservative and progressive views of the business cycle, particularly the nature and costs of unemployment.
-What are sources of disturbances to the economy according to progressive ?economists?

Question 10

Compare and contrast the conservative and progressive views of the business cycle, particularly the nature and costs of unemployment.
-What are the differences in the explanations by conservative and progressive ?economists?

Question 11

Explain why conservative economists argue that, left alone, the economy will adjust back to full-employment equilibrium.
-According to conservative economists, how will the economy recover from a shock?

Question 12

Explain why conservative economists argue that, left alone, the economy will adjust back to full-employment equilibrium.
-Describe the process of recovery used by progressive economists.

Question 13

Explain why progressive economists argue that business cycles are driven by the internal workings of capitalism.
-Identify the "internal process" that drives the economy from boom to bust and back again.

Question 14

Explain why progressive economists argue that business cycles are driven by the internal workings of capitalism.
-Describe in detail each step of the process in #6.

Question 15

Explain why progressive economists argue that business cycles are driven by the internal workings of capitalism.
-What are the two sides that squeeze profits near the end of expansion? Explain how the "squeeze" on profits happens.

Question 16

Explain why progressive economists argue that business cycles are driven by the internal workings of capitalism.
-List the components of revenue and explain how revenue behaves over the business cycle. What leads to crisis? What leads to recovery?

Question 17

Explain why progressive economists argue that business cycles are driven by the internal workings of capitalism.
-List the components of costs and explain how costs behave over the business cycle. What leads to crisis? What leads to recovery?

Question 18

Describe the underconsumptionist explanation of recessions and some critiques of the theory.
-What is "underconsumption?" What causes it? How does it impact the macroeconomy?

Question 19

Describe the underconsumptionist explanation of recessions and some critiques of the theory.
-What is the main criticism of underconsumption?

Question 20

Describe the overinvestment theory of recessions and some critiques of the theory.
-What is "overinvestment?" What causes it? How does it impact the macroeconomy?

Question 21

Describe the overinvestment theory of recessions and some critiques of the theory.
-What are the main criticisms of overinvestment?

Question 22

Describe the notion of virtuous and vicious circles in the economy and why they happen.
-What is a "virtuous circle?" What is the process that creates a virtuous circle?

Question 23

Describe the notion of virtuous and vicious circles in the economy and why they happen.
-What is a "vicious circle?" What is the process that creates a vicious circle?

Question 24

Why are Neoclassical economists often called "equilibrium theorists?"

A) because they believe that government can easily restore the economy to equilibrium.
B) because they believe the economy will always restore itself to equilibrium.
C) because they believe the economy is always in equilibrium.
D) because they believe all problems in the economy are caused by its equilibrium tendencies.

Question 25

Robert Lucas, a well-known University of Chicago economist and winner of the 1995 Nobel Prize, argued that shocks to the economy come primarily from

A) forces internal to the capitalist system.
B) mistakes by government.
C) technological change.
D) major shifts in commodity prices.

Question 26

What is "real business cycle theory?"

A) outside shocks disrupt the economy and require government action to stabilize expectations.
B) the most important shocks to the economy come from technological change.
C) the most important shocks to the economy come from government policy mistakes.
D) business cycles are caused by the internal dynamics of capitalism.

Question 27

According to conservative economists, how does the economy recover from an external shock?

A) government policy can help to stabilize the economy.
B) the economy will restore itself to equilibrium automatically.
C) another outside shock will counteract the first shock.
D) external shocks have no impact on an economy as large as the U.S.

Question 28

How are profits calculated?

A) Profits = Revenue-Costs
B) Profits = Revenue/Costs
C) Profits = Revenue-Taxes
D) Profits = Revenues + Costs

Question 29

According to Progressives, what is the most important factor in causing business cycles?

A) business cycles are caused by external shocks to the economy.
B) business cycles are caused by misguided government policies.
C) busines cycles are caused by the drive for profits.
D) business cycles are caused by technological change.

Question 30

According to Progressives, what happens during a recovery?

A) There is a rapid rise in interest rates.
B) Revenues are falling due to rising costs.
C) Revenues are rising rapidly while costs are still low.
D) Consumers begin to save more to recover from the recession.

Question 31

According to Progressives, what causes the expansion to come to an end?

A) Profits are squeezed by rising costs and lower revenues.
B) Excessive exuberance leads to investment mistakes.
C) Outside shocks to the economy increase consumer spending.
D) Profits expand reducing money available for investment.

Question 32

According to Progressives, what is occurring at the peak of the cycle?

A) slowdown in consumer spending, falling raw materials costs and falling production.
B) increasing consumer spending, increasing raw materials costs and increasing production.
C) slowdown in consumer spending, increasing raw materials costs and increasing production.
D) rising profits, increasing labor income, rising costs.

Question 33

According to Progressives, what are the four phases of a business cycle?

A) recovery, prosperity, crisis, recession
B) recovery, expansion, contraction, recession
C) recovery, peak, recession, depression.
D) properity, crisis, peak, expansion