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Business Cycles and Their Characteristics quiz #1 Flashcards

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Business Cycles and Their Characteristics quiz #1
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  • What happens to GDP during a contraction in the business cycle?
    During a contraction in the business cycle, GDP decreases as production, income, and employment all decline.
  • What are the high points on a business cycle graph called?
    The high points are called peaks. They represent the maximum output before a contraction begins.
  • What term describes the period between a trough and a peak in the business cycle?
    This period is called an expansion. During an expansion, production, income, and employment are increasing.
  • How do irregular innovations affect the business cycle?
    Irregular innovations can cause sudden economic booms by introducing new technologies or industries. However, growth from these innovations eventually stabilizes as the economy absorbs them.
  • What is a common effect of increased availability of a key resource like oil on the economy?
    Increased availability of a key resource can lead to an economic boom by lowering costs and encouraging investment. This acts as a positive shock to the business cycle.
  • How can monetary policy changes by the Federal Reserve impact the business cycle?
    Monetary policy changes, such as adjusting interest rates or money supply, can cause economic shocks. These actions are often intended to address recessions or stimulate growth.
  • What is the typical relationship between unemployment and inflation during the business cycle?
    Unemployment and inflation usually move in opposite directions during the business cycle. When unemployment rises, inflation tends to fall, and vice versa.
  • What is a 'jobless recovery' in the context of the business cycle?
    A jobless recovery occurs when the economy starts to grow after a recession but unemployment remains high or continues to rise. This phenomenon was observed after the last three recessions since 1990.
  • How can political events like wars or terrorism influence the business cycle?
    Political events can cause sudden shocks that lead to either economic booms or recessions. These shocks disrupt the normal flow of economic activity.
  • What role does financial instability, such as a market bubble, play in the business cycle?
    Financial instability, like a bursting market bubble, can trigger a sharp economic downturn or recession. The 2008 real estate bubble is an example of such an event causing a major contraction.