Business Cycle Overview

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Questions and Answers

What is a significant characteristic of the business cycle in both industrialized and developing economies?

Fluctuations occur only in wealthy nations.

Unemployment is one of the major economic problems. (correct)

Economic fluctuations can be explained by a single universal theory.

Economic activities remain stable throughout the years.

Which phase of the business cycle is defined by business activities reaching their maximum?

Peak/Prosperity (correct)

Recession

Trough

Recovery

What typically follows the Peak/Prosperity phase in the business cycle?

Stagnation

Expansion

Recession (correct)

Trough

Which of the following accurately describes a feature of the recession phase?

Decline in total output, income, trade, and employment. Signup and view all the answers

What can obstruct a country's economic growth during the business cycle?

Structural problems within the economy. Signup and view all the answers

Which economic issue is equally prominent in both highly industrialized and developing countries?

Inflation and unemployment. Signup and view all the answers

What is a common consequence of a recession in an economy?

Reduction in consumer spending. Signup and view all the answers

Which statement best captures the essence of economic fluctuations?

They can lead to complex outcomes in both rich and poor nations. Signup and view all the answers

Which of the following groups is considered outside the labor force?

Full-time students not looking for work Signup and view all the answers

What type of unemployment occurs when workers' qualifications do not match available jobs?

Structural unemployment Signup and view all the answers

What best describes a characteristic of structural unemployment?

It results from changes in technology. Signup and view all the answers

Which of the following scenarios exemplifies structural unemployment?

Workers unable to relocate after a company moves Signup and view all the answers

Which demographic is likely to be part of the labor force?

Full-time students available for work Signup and view all the answers

What is the primary reason for the outflow of Filipino workers to other countries?

Unemployment in the Philippines Signup and view all the answers

Which group may face challenges due to a lack of relevant skills?

Individuals in the agricultural job market Signup and view all the answers

Which factor is NOT associated with being outside the labor force?

Individuals actively looking for jobs Signup and view all the answers

What was one of the historical factors that led to the opening of the labor market to Middle Eastern countries?

High inflation and unemployment in the 1970s Signup and view all the answers

What is the Labor Force Participation Rate?

The ratio of actively employed and unemployed individuals Signup and view all the answers

How is the unemployment rate defined mathematically?

Total unemployed persons divided by total labor force Signup and view all the answers

What demographic does the 'labor force' include?

All persons aged 15 and over Signup and view all the answers

What impact does unemployment have on Philippine society?

It leads to reduced productivity and economic loss Signup and view all the answers

What was a significant issue during President Arroyo's administration that impacted the economy?

Corruption issues Signup and view all the answers

What does a high unemployment rate signify for a country?

Unused potential in production Signup and view all the answers

What is a reason why the Philippines continues to rely on foreign labor markets?

Low quality of local jobs Signup and view all the answers

What challenge do Filipinos face by working in foreign countries?

Life-threatening risks Signup and view all the answers

Which phase is characterized by a deep recession in the business cycle from 1990 to 1997 in the Philippines?

Crisis Signup and view all the answers

Endogenous theories of business cycles focus on which type of causes?

Internal economic conditions Signup and view all the answers

According to Wesley Mitchell, how does one phase of the business cycle relate to the previous phase?

It grows out of the preceding phase Signup and view all the answers

What does the underconsumption theory attribute to the business cycle?

Deficiency in purchasing power Signup and view all the answers

What is a potential outcome of a crisis phase in the business cycle?

Depression Signup and view all the answers

Which of the following explains the business cycle as a series of cumulative changes?

Self-generating theory Signup and view all the answers

What effect does aggressive investment planning have on purchasing power?

It typically increases purchasing power Signup and view all the answers

What does innovation contribute to in the context of the business cycle?

Emergence of new and better products Signup and view all the answers

What is a potential outcome of too many producers entering an industry?

Reduction in overall industry profitability Signup and view all the answers

Which period shows a recovery following the deep recession in the business cycle of the Philippines from 1990-2009?

1994 to 1997 Signup and view all the answers

What might happen if savings in a society are not invested, according to the content?

A downward turn in production Signup and view all the answers

According to the monetary theory, what should a Central Bank do if inflation threatens the economy?

Slow the rate of growth of money supply Signup and view all the answers

What do exogenous theories of the business cycle focus on?

Disturbances outside the economy Signup and view all the answers

What is the consequence of the Central Bank accelerating money growth after inflation is no longer a threat?

Promotion of economic recovery Signup and view all the answers

What does the underconsumptionist theory criticize about the role of savings in the economy?

It undermines demand for consumer goods Signup and view all the answers

Study Notes

Business Cycle

The business cycle is a characteristic of industrialized and developing economies, marked by cyclical fluctuations in economic activity.
The business cycle consists of four main phases: peak/prosperity, recession, trough, and recovery.

Phases of a Business Cycle

Peak/Prosperity is characterized by maximum business activity, full employment, and rising prices.
Recession is characterized by a decline in total output, income, trade, and employment.
Trough is the lowest point of economic activity in a business cycle.
Recovery is a period of increasing economic activity following a trough, with a gradual increase in production, employment, and consumer spending.

Theories of Business Cycle

Endogenous Theories attribute the causes of business cycles to factors internal to the economy.
- Real Structural Hypothesis (RSH) suggests that aggressive investment plans and import dependence can lead to structural imbalances and economic downturns.
- Innovation Theory argues that innovation drives business cycles, with new innovations leading to increased profits, attracting new entrants, and eventually leading to overproduction and a downturn.
- Self-Generating Theory proposes that each phase of the business cycle is a product of the preceding phase, creating a cyclical pattern.
- Underconsumption Theory attributes business downturns to insufficient consumer demand, driven by factors like low purchasing power and excessive savings.
- Monetary Theory emphasizes the role of monetary policy in influencing business cycles, with inflation leading to tighter monetary policy and potentially causing recessions.
Exogenous Theories attribute the causes of business cycles to factors external to the economy.

Unemployment

Unemployment is a significant problem in the Philippines, reflected in Filipinos working abroad and migrating to Middle Eastern countries for employment.
The unemployment rate in the Philippines is the percentage of unemployed individuals in the labor force.
The labor force in the Philippines includes all persons aged 15 years and over who contribute to the production of goods and services, whether employed or unemployed.
There are different types of unemployment:
- Cyclical Unemployment occurs during economic downturns due to decreased demand for labor.
- Frictional Unemployment results from temporary disruptions in the labor market, such as job transitions or seasonal changes.
- Structural Unemployment arises from mismatches between the skills and qualifications of workers and the requirements of available jobs, often due to changes in technology or industry shifts.
- Seasonal Unemployment is temporary and tied to specific seasons, such as agricultural work or holiday employment.

Inflation

Inflation is a sustained increase in the general price level of goods and services in an economy.

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Description

This quiz covers the essential concepts of the business cycle, including its phases: peak, recession, trough, and recovery. It also explores theories related to the business cycle, focusing on endogenous factors that influence economic fluctuations. Test your knowledge on how economic activities cycle through these stages.