Deck 8: Business Cycles

Question 1

The tendency of many economic variables to move together in a predictable way over the business cycle is called

A)recurrence.
B)persistence.
C)comovement.
D)inflation.

Answer 1

comovement.

Question 2

Comovement is

A)the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth.
B)the idea that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies.
C)the tendency of many economic variables to move together in a predictable way over the business cycle.
D)the idea that peaks and troughs of the business cycle occur at regular intervals.

Answer 2

the tendency of many economic variables to move together in a predictable way over the business cycle.

Question 3

Business cycles all display the following characteristics except

A)a period of expansion followed by one of contraction.
B)comovement of many economic variables.
C)rising prices during an expansion and falling prices during the contraction.
D)they last a period of one to twelve years.

Answer 3

rising prices during an expansion and falling prices during the contraction.

Question 4

The dates of turning points are determined by a committee from the

A)FBI.
B)BLS.
C)BEA.
D)NBER.

Question 5

Research on the effects of recessions on the real level of GDP shows that

A)recessions cause only temporary reductions in real GDP, which are offset by growth during the expansion phase.
B)recessions cause large, permanent reductions in the real level of GDP.
C)recessions cause both temporary and permanent declines in real GDP, but most of the decline is temporary.
D)recessions cause both temporary and permanent declines in real GDP, but most of the decline is permanent.

Question 6

The low point in the business cycle is referred to as the

A)expansion.
B)boom.
C)trough.
D)peak.

Question 7

A detailed history of business cycles is known as a

A)historical decomposition.
B)trend analysis.
C)Hodrick-Prescott filter.
D)business cycle chronology.

Question 8

Who officially determines whether the economy is in a recession or expansion?

A)The president of the United States
B)The U.S. Congress
C)The Federal Reserve Board of Governors
D)The National Bureau of Economic Research

Question 9

One of the first organizations to investigate the business cycle was

A)the Federal Reserve System.
B)the National Bureau of Economic Research.
C)the Council of Economic Advisors.
D)the Brookings Institution.

Question 10

The high point in the business cycle is referred to as the

A)turning point.
B)peak.
C)boom.
D)trough.

Question 11

When aggregate economic activity is increasing,the economy is said to be in

A)an expansion.
B)a contraction.
C)a peak.
D)a turning point.

Question 12

Turning points in business cycles occur when

A)a new business cycle is initiated at the trough.
B)the economy hits the peak or trough in the business cycle.
C)the business cycle begins to follow a new pattern that differs from previous business cycles.
D)a new business cycle is initiated at the peak.

Question 13

The tendency for declines in economic activity to be followed by further declines,and for growth in economic activity to be followed by more growth is called

A)persistence.
B)comovement.
C)periodicity.
D)recurrence.

Question 14

The tendency of many different economic variables to have regular and predictable patterns over the business cycle is called

A)persistence.
B)comovement.
C)periodicity.
D)recurrence.

Question 15

Peaks and troughs of the business cycle are known collectively as

A)volatility.
B)turning points.
C)equilibrium points.
D)real business cycle events.

Question 16

The fact that business cycles are recurrent but not periodic means that

A)business cycles occur at predictable intervals, but do not last a predetermined length of time.
B)the business cycle's standard contraction-trough-expansion-peak pattern has been observed to occur over and over again, but not at predictable intervals.
C)business cycles occur at predictable intervals, but do not all follow a standard contraction-trough-expansion-peak pattern.
D)business cycles last a predetermined length of time, but do not all follow a standard contraction-trough-expansion-peak pattern.

Question 17

Which group within the National Bureau of Economic Research officially determines whether the economy is in a recession or expansion?

A)The G-4
B)The Business Cycle Dating Committee
C)The Business Cycle Governors
D)The Turning Point Group

Question 18

The trough of a business cycle occurs when ________ hits its lowest point.

A)inflation
B)the money supply
C)aggregate economic activity
D)the unemployment rate

Question 19

The entire sequence of a decline in aggregate economic activity followed by recovery,measured from peak to peak or trough to trough is a

A)long-run trend.
B)potential output path.
C)business cycle.
D)recurrent comovement.

Question 20

When aggregate economic activity is declining,the economy is said to be in

A)a contraction.
B)an expansion.
C)a trough.
D)a turning point.

Question 21

The 1973-1975 recession was caused by

A)the Fed's easy monetary policy.
B)the Fed's tight monetary policy.
C)business pessimism about investment caused by high tax rates on capital.
D)the quadrupling of oil prices by OPEC.

Question 22

Persistence is

A)the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth.
B)the idea that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies.
C)the tendency of many economic variables to move together in a predictable way over the business cycle.
D)the idea that peaks and troughs of the business cycle occur at regular intervals.

Question 23

When a recession occurs,do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?

Question 24

The deep recession of 1973-1975 was mainly caused by

A)flawed technology that caused a drop in TFP.
B)an unexplained drop in business optimism.
C)slower money growth.
D)higher oil prices.

Question 25

The longest contraction in American history occurred

A)during the 1870s.
B)in the years right before World War I began.
C)during the 1930s.
D)during the 1970s.

Question 26

The long boom occurred in the

A)1920s and 1930s.
B)1940s and 1950s.
C)1960s and 1970s.
D)1980s and 1990s.

Question 27

The worst recessions after World War II occurred

A)during 1945-1946 and 1973-1975.
B)during 1957-1958 and 1973-1975.
C)during 1973-1975 and 1981-1982.
D)during 1945-1946 and 1981-1982.

Question 28

The idea that the business cycle is recurrent means that

A)declines in economic activity tend to be followed by further declines, and growth in economic activity tends to be followed by more growth.
B)the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies.
C)many economic variables to move together in a predictable way over the business cycle.
D)peaks and troughs of the business cycle occur at regular intervals.

Question 29

The Great Recession began in ________ and ended in ________.

A)December 2007; June 2009
B)December 2007; December 2011
C)October 2008; June 2009
D)October 2008; December 2011

Question 30

The Great Depression consisted of how many business cycles?

A)1
B)2
C)3
D)4

Question 31

Christina Romer's criticism of the belief that business cycles had moderated since World War II depended on the fact that

A)estimates of the timing of business cycles since World War II had been inaccurate.
B)misuse of historical data had caused economists to understate the size of cyclical fluctuations in the post-World War II era.
C)economists had ignored the roles of the government and international trade in mitigating economic fluctuations prior to World War II.
D)economists had left out important components of GDP, such as wholesale and retail distribution, transportation, and services, in their pre-World War II estimates.

Question 32

By 1937,when a new recession began in the midst of the Great Depression,

A)GDP had almost recovered to its 1929 level, but unemployment was still above the 1929 level.
B)unemployment had almost fallen back to its 1929 level, but GDP had yet to recover to its 1929 level.
C)neither GDP nor unemployment had returned to near their 1929 levels.
D)both GDP and unemployment had returned to near their 1929 levels.

Question 33

The long boom ended in

A)1999.
B)2001.
C)2008.
D)2012.

Question 34

The longest economic expansion in the United States occurred during the

A)1940s.
B)1960s.
C)1980s.
D)1990s.

Question 35

The NBER's Business Cycle Dating Committee picks recession dates by looking at many variables,the four most important of which are industrial production,manufacturing and trade sales,nonfarm employment,and real personal income.These variables are known as

A)leading indicators.
B)coincident indicators.
C)lagging indicators.
D)recession indicators.

Question 36

In the Great Depression,the financial sector collapsed,as

A)banks engaged in ruinous competition.
B)the stock market boomed, so people withdrew most of their funds from banks and invested heavily in stocks.
C)the bond market boomed, so people withdrew most of their funds from banks and invested heavily in bonds.
D)many banks closed.

Question 37

Christina Romer's estimates of the business cycles prior to World War II showed that the business cycle

A)had greater fluctuations before World War II than previous estimates had shown.
B)had smaller fluctuations before World War II than previously estimated.
C)had smaller fluctuations before World War II than after World War II.
D)had larger fluctuations after World War II than had been previously measured.

Question 38

Describe the major features of the business cycle.Be sure to discuss what variables are affected by the cycle,a description of the key features that are apparent in the data,how variables are related to one another,how regular the cycle is,and how predictable the cycle is.

Question 39

Define the following characteristics of business cycles: recurrence and persistence.

Question 40

Christina Romer argued that

A)measured properly, GNP before 1929 varied substantially less over time than the official statistics showed.
B)measured properly, GNP after 1929 varied substantially more over time than the official statistics showed.
C)measured properly, economic expansions after 1929 were shorter than the official statistics showed.
D)measured properly, economic expansions before 1929 were shorter than the official statistics showed.

Question 41

Lagging variables are aggregate economic variables that

A)reach a peak after leading variables but before coincident variables reach a peak.
B)reach a peak after coincident variables reach a peak.
C)reach a peak two or more years after aggregate economic activity reaches a peak.
D)are insensitive to business cycles.

Question 42

An economic variable that moves in the opposite direction as aggregate economic activity (down in expansions,up in contractions)is called

A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.

Question 43

Stock and Watson found that ________ was responsible for about 20-30 % of the reduction in output volatility that occurred in the mid-1980s.

A)reduced shocks to productivity
B)reduced shocks to food and commodity prices
C)better monetary policy
D)better inventory control

Question 44

An economic variable that moves in the same direction as aggregate economic activity (up in expansions,down in contractions)is called

A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.

Question 45

If you were a member of the NBER business-cycle dating committee,would you declare that the U.S.economy is now in a recession? Why? Describe the major variables that you would look at to determine whether the economy is in a recession or not,and what features of the data you would look for.

Question 46

The CFNAI is a

A)leading index based on variables released with different frequencies.
B)coincident index based on variables released with different frequencies.
C)leading index based on 85 monthly variables.
D)coincident index based on 85 monthly variables.

Question 47

How has the severity and duration of business cycles changed over time in the United States?

Question 48

Use the NBER data in Table 8.1 in the textbook on U.S.business cycle turning points to calculate: a)the shortest business cycle from peak to peak; b)the shortest business cycle from trough to trough; c)the longest business cycle from peak to peak; and d)the longest business cycle from trough to trough.

Question 49

According to research by Stock and Watson,the recent decline in volatility in many macroeconomic variables was a

A)sudden drop that occurred around 1984.
B)gradual decline throughout the 1980s.
C)sudden drop that occurred around 1990.
D)gradual decline throughout the 1990s.

Question 50

An economic variable that doesn't move in a consistent pattern with aggregate economic activity is called

A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.

Question 51

A variable that tends to move at the same time as aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 52

Which of the following macroeconomic variables is procyclical and coincident with the business cycle?

A)Residential investment
B)Nominal interest rates
C)Industrial production
D)Unemployment

Question 53

The ADS Business Conditions Index is a

A)leading index based on variables released with different frequencies.
B)coincident index based on variables released with different frequencies.
C)leading index based on 85 monthly variables.
D)coincident index based on 85 monthly variables.

Question 54

Which of the following macroeconomic variables is procyclical and leads the business cycle?

A)Business fixed investment
B)Residential investment
C)Nominal interest rates
D)Unemployment

Question 55

A variable that tends to move in advance of aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 56

The widespread decline in the volatility of many macroeconomic variables after 1984 led economists to term this period the

A)Great Moderation.
B)Low Volatility Era.
C)Steady State.
D)Long Boom.

Question 57

Stock and Watson found that monetary policy was responsible for about ________% of the reduction in output volatility that occurred in the mid-1980s.

A)0 to 10
B)10 to 20
C)20 to 30
D)30 to 40

Question 58

The recession of 2001 began in ________ and ended in ________.

A)March; November
B)February; December
C)April; October
D)February; October

Question 59

A variable that tends to move later than aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 60

Diebold and Rudebusch showed that the composite index of leading indicators did not improve forecasts of industrial production because

A)the index is not produced in a timely manner.
B)the government manipulates the index so it never predicts a recession.
C)the index is not designed for forecasting.
D)data on the components of the index are revised.

Question 61

Which of the following macroeconomic variables is the most seasonally procyclical?

A)Expenditure on services
B)The unemployment rate
C)Expenditure on durable goods
D)The real wage

Question 62

Real interest rates are

A)procyclical, just like nominal interest rates.
B)acyclical, while nominal interest rates are procyclical.
C)acyclical, just like nominal interest rates.
D)countercyclical, while nominal interest rates are procyclical.

Question 63

Which of the following macroeconomic variables is procyclical and lags the business cycle?

A)Business fixed investment
B)Employment
C)Stock prices
D)Nominal interest rates

Question 64

The job loss rate

A)equals 1 minus the job finding rate.
B)remains constant over the business cycle.
C)rises in recessions.
D)rises in expansions.

Question 65

Which of the following is true?

A)Employment and unemployment are both coincident with the business cycle.
B)Employment and unemployment are both procyclical.
C)Employment is procyclical and unemployment is coincident with the business cycle.
D)Employment is procyclical and unemployment is countercyclical.

Question 66

You want to invest in a firm whose profits show large fluctuations throughout the business cycle.Which of the following would you invest in?

A)A corporation that depends heavily on business fixed investment
B)A corporation that depends heavily on consumer services
C)A corporation that depends heavily on consumer nondurables
D)A corporation that depends heavily on government purchases

Question 67

Which of the following statements is true?

A)Both nominal and real interest rates are procyclical and leading.
B)Both nominal and real interest rates are procyclical and lagging.
C)Nominal interest rates are procyclical and real interest rates are countercyclical.
D)Nominal interest rates are procyclical and real interest rates are acyclical.

Question 68

Which of the following macroeconomic variables is acyclical?

A)Real interest rates
B)Unemployment
C)Money supply
D)Consumption

Question 69

Which of the following macroeconomic variables would you include in an index of leading economic indicators?

A)Employment
B)Inflation
C)Real interest rates
D)Residential investment

Question 70

The job finding rate is defined as

A)the probability that someone who has been unemployed for over a year will find a job in the next month.
B)the probability that someone who is not in the labor force will enter the labor force in the next month.
C)the probability that someone who is employed will change jobs in the next month.
D)the probability that someone who is unemployed will find a job in the next month.

Question 71

The job finding rate

A)equals 1 minus the job loss rate.
B)remains constant over the business cycle.
C)rises in recessions.
D)rises in expansions.

Question 72

Industries that are extremely sensitive to the business cycle are the

A)durable goods and service sectors.
B)nondurable goods and service sectors.
C)capital goods and nondurable goods sectors.
D)capital goods and durable goods sectors.

Question 73

Which of the following is not a leading variable?

A)Inflation
B)Stock prices
C)Average labor productivity
D)Residential investment

Question 74

You want to invest in a firm whose profits show small fluctuations throughout the business cycle.Which of the following would you invest in?

A)A corporation that depends heavily on business fixed investment
B)A corporation that depends heavily on residential investment
C)A corporation that depends heavily on consumer nondurables
D)A corporation that depends heavily on consumer durables

Question 75

Which of the following macroeconomic variables would you exclude from an index of leading economic indicators?

A)Money supply
B)Industrial production
C)Inventory investment
D)Residential investment

Question 76

Using the seasonal business cycle as your guide,during which quarter would you be most likely to expect an increase in your corporation's sales?

A)The first quarter of the year (January-March)
B)The second quarter of the year (April-June)
C)The third quarter of the year (July-September)
D)The fourth quarter of the year (October-December)

Question 77

Which of the following macroeconomic variables could not be used as a leading economic indicator?

A)Residential investment
B)Employment
C)The money supply
D)Stock prices

Question 78

The probability that an employed worker will lose his or her job in the next month is known as

A)the unemployment rate.
B)the job finding rate.
C)the underemployment rate.
D)the job loss rate.

Question 79

Which of the following macroeconomic variables is countercyclical?

A)Real interest rates
B)Unemployment
C)Money growth
D)Consumption

Question 80

Which of the following macroeconomic variables does not vary much over the seasons?

A)The nominal money stock
B)The unemployment rate
C)The real wage
D)Average labor productivity