Starting at full employment, a business cycle can be described by the following sequence: equilibrium, equilibrium, equilibrium.
A) below full- employment; full- employment; below full- employment
B) below full- employment; full- employment; above full- employment
C) full- employment; below full- employment; above full- employment
D) above full- employment; below full- employment; full- employment

Question

Quizplus · Accepted Answer

A business cycle typically starts at a point below full-employment due to a recession or contraction. As the economy starts to recover, it moves towards full-employment, which is the equilibrium point. However, if the economy grows too quickly, it may move beyond full-employment and into inflationary territory, which is above the equilibrium point. This is the peak of the business cycle. Eventually, the economy will slow down and move back towards full-employment, marking the end of the expansion phase and the beginning of a contraction phase. Thus, the correct sequence for a business cycle is below full-employment; full-employment; above full-employment; full-employment; and below full-employment again. Choice B matches this sequence.

Starting at Full Employment, a Business Cycle Can Be Described