Deck 29: Business Cycles

Question 1

The business cycle refers to the:

A)rise and fall of business revenues over time.
B)long-term trends in economic growth.
C)increases in GDP above potential GDP.
D)short-term fluctuations in economic activity.

Answer 1

D

Question 2

An economy's potential output level is:

A)the output when unemployment is zero.
B)equivalent of the GDP at current market value.
C)the level at which no resources are available in the economy.
D)the output that is possible when all resources are fully employed.

Answer 2

D

Question 3

Which of the following correctly describes the business cycle?

A)It is the fluctuations of GDP around the potential output.
B)It is the constant rise in GDP over time.
C)It refers to ups and downs in business revenue during expansions and recessions.
D)It refers to excess unemployment during recessionary periods.

Answer 3

A

Question 4

The four stages of the business cycle are:

A)expansion, growth, contraction, and depression.
B)peak, recession, trough, and expansion.
C)consumption, investment, government expenditure, and net exports.
D)full employment, potential GDP, recessionary gap, and inflationary gap.

Question 5

How many stages are in the business cycle?

A)Five
B)Between three and eight, depending on severity
C)Four
D)Six

Question 6

To say that business cycles are persistent means that:

A)they typically have short and sharp recessions, followed by long and gradual expansions.
B)they usually last over 20 years.
C)current conditions typically continue in the near future.
D)growth rates in a cycle will always be higher than growth rates in the previous cycle.

Question 7

Typically, business cycles:

A)have short and sharp recessions, followed by long and gradual expansions.
B)last over 20 years.
C)do not display persistence.
D)have short and sharp expansions, followed by long and gradual recessions.

Question 8

Which of the following stages of the business cycle is most preferable when you graduate from college and begin looking for a job?

A)Expansion
B)Trough
C)Contraction
D)Recession

Question 9

Which of the following indicators will probably rise when the economy is in a recession?

A)Real GDP growth
B)Unemployment
C)Industrial production
D)Real retail sales

Question 10

Which of the following will probably rise when the economy is in a recession?

A)Real GDP growth
B)Employment
C)Initial unemployment claims
D)Real retail sales

Question 11

Which of the following will rise when the economy is expanding?

A)Real GDP growth
B)Unemployment
C)Initial unemployment claims
D)Equilibrium unemployment rate

Question 12

Which of the following will rise when the economy is expanding?

A)Applications for unemployment benefits
B)Unemployment across the economy
C)State-level unemployment
D)Industrial production

Question 13

Which of the following will fall when the economy is expanding?

A)Applications for unemployment benefits
B)Business confidence
C)Consumer confidence
D)Nonfarm payrolls

Question 14

Which of the following will rise when the economy is contracting?

A)Applications for unemployment benefits
B)Business confidence
C)Consumer confidence
D)Nonfarm payrolls

Question 15

The broadest measure of economic activity is:

A)the stock market.
B)business confidence.
C)real GDP.
D)nonfarm payrolls.

Question 16

Real GDP is calculated by:

A)adding total income to total expenditure.
B)counting the number of items produced in an economy.
C)subtracting national spending from national income.
D)adding all the spending in the economy.

Question 17

Nonfarm payroll is an important indicator because it tells you how _____ is doing.

A)farm production
B)the labor market
C)employment within the agricultural sector
D)consumer confidence

Question 18

Refer to the data dashboard shown. Which indicator directly tells you how the labor market is doing?

A)Consumer confidence
B)Real GDI
C)Initial unemployment claims
D)Nonfarm payrolls

Question 19

Refer to the data dashboard shown. Which indicator is a lagging indicator?

A)Consumer confidence
B)Business confidence
C)Unemployment rate
D)Stock prices: S&P 500

Question 20

Refer to the data dashboard shown. Which of the following is an indicator of excess capacity?

A)Consumer confidence
B)Inflation
C)Business confidence
D)Unemployment rate

Question 21

Refer to the data dashboard shown. Which indicator tells you what managers are planning?

A)Consumer confidence
B)Inflation
C)Business confidence
D)Unemployment rate

Question 22

Refer to the data dashboard shown. Which indicator is a cross-check on GDP?

A)Employment cost index
B)Real GDI
C)Business confidence
D)Stock prices: S&P 500

Question 23

Refer to the data dashboard shown. Which indicator tells you how fast wages and benefits are rising?

A)Employment cost index
B)Inflation
C)Business confidence
D)Stock prices: S&P 500

Question 24

Why are broad indicators better than narrow indicators?

A)Narrow indicators are harder to measure than broad indicators.
B)Narrow indicators present economy-wide trends.
C)Broad indicators better capture economy-wide effects.
D)Narrow indicators present more refined forecasts.

Question 25

Which of the following is a broad indicator?

A)The consumer price index
B)Agricultural sector output
C)Starbucks stock returns
D)Labor demand in the agricultural industry

Question 26

Which of the following is a broad indicator?

A)The price of imported avocados
B)Enrollment at your university
C)The unemployment rate
D)An index of technology use in farming

Question 27

Which of the following is a narrow indicator?

A)The consumer price index
B)The stock price for JPMorgan Chase & Co.
C)Non-farm payrolls
D)Real GDI

Question 28

Which of the following is a broad indicator?

A)Real gross domestic income
B)Agricultural sector output
C)Starbucks stock returns
D)Labor demand in the agricultural industry

Question 29

Suppose the equilibrium unemployment rate is 3.8%. Which of the following rates of unemployment would be most likely if the economy is in the trough of a recession?

A)2.85%
B)4.1%
C)3.8%
D)7.9%

Question 30

Suppose that an economy is in a recession. You would expect to see the unemployment rate:

A)rise above the equilibrium unemployment rate.
B)fall below the equilibrium unemployment rate.
C)be equal to the equilibrium unemployment rate.
D)be zero.

Question 31

Suppose that an economy is overheating. You would expect to see the unemployment rate:

A)rise above the equilibrium unemployment rate.
B)fall below the equilibrium unemployment rate.
C)be equal to the equilibrium unemployment rate.
D)be zero.

Question 32

Suppose that an economy is in a recession. You would expect to see real GDP:

A)rise above potential GDP.
B)be equal to potential GDP.
C)fall below potential GDP.
D)and nominal GDP unchanged.

Question 33

Suppose that an economy is overheating. You would expect to see real GDP:

A)rise above potential GDP.
B)be equal to potential GDP.
C)fall below potential GDP.
D)and nominal GDP unchanged.

Question 34

The output gap allows us to capture:

A)changes in inflation from the long-run level of inflation.
B)the economy's deviations from the neutral interest rate.
C)increases in unemployment.
D)the economy's deviations from potential GDP.

Question 35

If an economy has a positive output gap of 3%, this means:

A)unemployment is 3% above the natural rate of unemployment.
B)GDP is 3% above potential GDP.
C)inflation is 3% above the long-run rate of inflation.
D)GDP is 3% below potential GDP.

Question 36

If an economy has a positive output gap of 1.5%, this means:

A)unemployment is 1.5% above the natural rate of unemployment.
B)GDP is 1.5% above potential GDP.
C)inflation is 1.5% above the long-run rate of inflation.
D)GDP is 1.5% below potential GDP.

Question 37

If an economy has a negative output gap of 2%, this means:

A)unemployment is 2% above the natural rate of unemployment.
B)GDP is 2% above potential GDP.
C)inflation is 2% above the long-run rate of inflation.
D)GDP is 2% below potential GDP.

Question 38

If an economy has a positive output gap of 2.75%, this means:

A)unemployment is 2.75% above the natural rate of unemployment.
B)GDP is 2.75% above potential GDP.
C)inflation is 2.75% above the long-run rate of inflation.
D)GDP is 2.75% below potential GDP.

Question 39

If an economy has an output gap of 0%, this means:

A)inflation is 0%.
B)unemployment is 0%.
C)actual GDP is at potential GDP.
D)the neutral rate of interest is at 0%.

Question 40

If an economy has an output gap of 0%, this means the economy is:

A)experiencing cyclical unemployment.
B)unsustainable in the long run.
C)at its highest sustainable rate of production.
D)suffering from hyperinflation.

Question 41

Economic expansions:

A)are always equal in length to economic contractions.
B)are sharp.
C)cannot last more than five years.
D)do not last forever due to adverse shocks.

Question 42

According to Okun's rule of thumb, for every 1% fall in the actual output below potential output, the unemployment rate:

A)rises by 1%.
B)falls by 1%.
C)rises by 0.5%.
D)falls by 0.5%.

Question 43

If the Turkish Central Bank forecasts a negative output gap, you can reasonably expect _____ on the horizon.

A)deflation
B)excess demand
C)high demand for labor
D)rising consumer confidence

Question 44

If the Turkish Central Bank forecasts a positive output gap, you can reasonably expect _____ on the horizon.

A)deflation
B)very low demand
C)falling business confidence
D)rising consumer confidence

Question 45

The Great Moderation refers to the:

A)stable level of inflation in the United States.
B)increase in globalization.
C)decreased volatility of the U.S. economy.
D)longstanding effect of the Great Recession.

Question 46

Which of the following is a reason for the Great Moderation?

A)Global demand for U.S. goods and services
B)The 2007 to 2009 Great Recession
C)Stagflation during the 1970s
D)Fiscal policy lags

Question 47

Which of the following is a reason for the Great Moderation?

A)Increased effectiveness of Federal Reserve policy
B)Decreased business confidence
C)Politics
D)Fiscal policy lags

Question 48

Leading indicators are variables that:

A)reflect the effects of monetary policy.
B)tend to predict the future state of the economy.
C)follow the business cycle with a delay.
D)reflect the effects of fiscal policy.

Question 49

Lagging indicators are variables that:

A)predict monetary policy.
B)tend to predict the future state of the economy.
C)follow the business cycle with a delay.
D)predict fiscal policy.

Question 50

An example of a leading indicator is:

A)tariffs.
B)college enrollment.
C)unemployment.
D)business confidence.

Question 51

An example of a leading indicator is:

A)nonfarm payrolls.
B)unemployment insurance claims.
C)unemployment.
D)the stock market.

Question 52

An example of a lagging indicator is:

A)consumer confidence.
B)unemployment insurance claims.
C)business confidence.
D)the stock market.

Question 53

An example of a lagging indicator is:

A)consumer confidence.
B)business confidence.
C)unemployment.
D)the stock market.

Question 54

Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will:

A)rise by 1.5%.
B)fall by 2%.
C)rise by 3%.
D)fall by 1.5%.

Question 55

Based on Okun's rule of thumb, if you forecast that the output gap will decline from -2% to -4%, the unemployment rate will:

A)fall by 2%.
B)fall by 1%.
C)rise by 2%.
D)rise by 1%.

Question 56

Based on Okun's rule of thumb, if you forecast that the output gap will decline from -2% to -3%, the unemployment rate will:

A)fall by 1%.
B)rise by 1.5%.
C)rise by 1%.
D)rise by 0.5%.

Question 57

Based on Okun's rule of thumb, if you forecast that the output gap will decline from -1% to -3%, the unemployment rate will:

A)fall by 1%.
B)rise by 2%.
C)rise by 1%.
D)rise by 0.5%.

Question 58

Which economic indicator tells you how fast the economy is growing?

A)The level of real GDP
B)Real GDP growth
C)Nonfarm payrolls
D)The employment cost index

Question 59

Which economic indicator tells you how fast wages and benefits are rising?

A)S&P 500
B)Business confidence
C)Nonfarm payrolls
D)The employment cost index

Question 60

Which economic indicator would you expect will decrease continuously as the economy grows?

A)Unemployment
B)Real GDP growth
C)Nonfarm payrolls
D)Consumer confidence

Question 61

Which economic indicator accounts for changes in the composition of the workforce?

A)The level of real GDP
B)Real GDP growth
C)Nonfarm payrolls
D)The employment cost index

Question 62

Which economic indicator tracks the value of 500 publicly traded firms?

A)S&P 500
B)Business confidence
C)Nonfarm payrolls
D)The employment cost index

Question 63

Which economic indicator tells you about the future expected profits of businesses?

A)S&P 500
B)Consumer price index
C)Nonfarm payrolls
D)Initial unemployment claims

Question 64

Which economic indicator will tell you whether real wages will rise or fall?

A)Initial unemployment claims
B)Consumer confidence
C)S&P 500
D)Consumer price index

Question 65

Which of the following indicators might be a good predictor of investment?

A)Initial unemployment claims
B)Consumer confidence
C)Business confidence
D)Nonfarm payrolls

Question 66

Refer to the following table. What was the approximate output gap in 1995?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)-3%
B)-3.6%
C)1.2%
D)3%

Question 67

Refer to the following table. What was the approximate output gap in 1996?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)3%
B)-5.5%
C)1.2%
D)-1.2%

Question 68

Refer to the following table. What was the approximate output gap in 1997?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)1.9%
B)1.2%
C)-3.6%
D)3%

Question 69

Refer to the following table. What was the approximate output gap in 1998?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)3%
B)-5.5%
C)1.2%
D)-1.2%

Question 70

Refer to the following table. What was the approximate output gap in 1999?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)1.9%
B)1.2%
C)-3.6%
D)3%

Question 71

Refer to the following table. In which year(s) was the economy above potential GDP?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)1997 only
B)1999 only
C)1995, 1996, 1997, and 1998 only
D)1995 and 1996 only

Question 72

Refer to the following table. In which year(s) was the economy below potential GDP?
$$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (trillions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (trillions of \$) }\end{array} \\\hline 1995 & 3.20 & 3.30 \\\hline 1996 & 3.45 & 3.65 \\\hline 1997 & 3.75 & 3.89 \\\hline 1998 & 4.05 & 4.10 \\\hline 1999 & 4.38 & 4.30 \\\hline\end{array}$$

A)1997 only
B)1999 only
C)1995, 1996, 1997, and 1998
D)1995 and 1996 only

Question 73

Refer to the following table. What was the approximate output gap in 1970?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)3.3%
B)2.1%
C)6.1%
D)-6.5%

Question 74

Refer to the following table. What was the approximate output gap in 1971?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)3.3%
B)2.1%
C)6.1%
D)-6.5%

Question 75

Refer to the following table. What was the approximate output gap in 1972?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)3.3%
B)2.1%
C)6.1%
D)-6.5%

Question 76

Refer to the following table. What was the approximate output gap in 1973?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)6.1%
B)2.1%
C)4.8%
D)-6.5%

Question 77

Refer to the following table. What was the approximate output gap in 1974?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)3.3%
B)2.1%
C)6.1%
D)-6.5%

Question 78

Refer to the following table. In which year(s) was the economy above potential GDP?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)1970, 1971, 1972, and 1973 only
B)1974 only
C)1970 and 1971 only
D)1973 and 1974 only

Question 79

Refer to the following table. In which year(s) was the economy below potential GDP?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1970 & 93 & 90 \\\hline 1971 & 96 & 94 \\\hline 1972 & 105 & 99 \\\hline 1973 & 109 & 104 \\\hline 1974 & 100 & 107 \\\hline\end{array}$$

A)1970, 1971, 1972, and 1973 only
B)1974 only
C)1970 and 1971 only
D)1973 and 1974 only

Question 80

Refer to the following table. What was the approximate output gap in 1980?
$$\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Real GDP } \\\text { (billions of \$) }\end{array} & \begin{array} { c } \text { Potential GDP } \\\text { (billions of \$) }\end{array} \\\hline 1980 & 175 & 179 \\\hline 1981 & 182 & 185 \\\hline 1982 & 189 & 188 \\\hline 1983 & 196 & 194 \\\hline 1984 & 202 & 198 \\\hline\end{array}$$

A)0.5%
B)1%
C)-2.2%
D)-1.6%