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Questions and Answers
Questions and Answers
The term business cycle refers to
The term business cycle refers to
- the ups and downs in production of commodities
- decline in economic activities over prolonged period of time
- the fluctuating levels of economic activity over a period of time (correct)
- increasing unemployment rate and diminishing rate of savings
A significant decline in general economic activity extending over a period of time is
A significant decline in general economic activity extending over a period of time is
- contraction phase
- recovery
- recession (correct)
- business cycle
The trough of a business cycle occurs when _____ hits its lowest point.
The trough of a business cycle occurs when _____ hits its lowest point.
- aggregate economic activity (correct)
- the unemployment rate
- inflation in the economy
- the money supply
The lowest point in the business cycle is referred to as the
The lowest point in the business cycle is referred to as the
A leading indicator is
A leading indicator is
A variable that tends to move later than aggregate economic activity is called
A variable that tends to move later than aggregate economic activity is called
Industries that are extremely sensitive to the business cycle are the
Industries that are extremely sensitive to the business cycle are the
A decrease in government spending would cause
A decrease in government spending would cause
Which of the following does not occur during an expansion?
Which of the following does not occur during an expansion?
Which of the following best describes a typical business cycle?
Which of the following best describes a typical business cycle?
During recession, the unemployment rate _____ and output _____.
During recession, the unemployment rate _____ and output _____.
The four phases of the business cycle are
The four phases of the business cycle are
Leading economic indicators
Leading economic indicators
When aggregate economic activity is declining, the economy is said to be in
When aggregate economic activity is declining, the economy is said to be in
Peaks and troughs of the business cycle are known collectively as
Peaks and troughs of the business cycle are known collectively as
The most probable outcome of an increase in the money supply is
The most probable outcome of an increase in the money supply is
Which of the following is not a characteristic of business cycles?
Which of the following is not a characteristic of business cycles?
Economic recession shares all of these characteristics except.
Economic recession shares all of these characteristics except.
The different phases of a business cycle
The different phases of a business cycle
Which of the following is not an example of coincident indicator?
Which of the following is not an example of coincident indicator?
According to _____ trade cycles occur due to onset of innovations.
According to _____ trade cycles occur due to onset of innovations.
Economic indicators are
Economic indicators are
Which economic indicator is required to predict the turning point of business cycle?
Which economic indicator is required to predict the turning point of business cycle?
Business cycle generally originates in free market economies, what is a free market economy?
Business cycle generally originates in free market economies, what is a free market economy?
Which of the following statements is correct?
Which of the following statements is correct?
According to Keynes, fluctuations in Economic activities are due to-.
According to Keynes, fluctuations in Economic activities are due to-.
Which of the following is the cause of business cycles?
Which of the following is the cause of business cycles?
Economists use changes in a variety of activities to measure the business cycle and to predict where the economy is headed towards which are called
Economists use changes in a variety of activities to measure the business cycle and to predict where the economy is headed towards which are called
If the growth rate of population is higher than the rate of economic growth, there will be _____ in the economy.
If the growth rate of population is higher than the rate of economic growth, there will be _____ in the economy.
The cobweb theory was propounded by
The cobweb theory was propounded by
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Flashcards
Flashcards
Business Cycles
Business Cycles
Rhythmic fluctuations in aggregate economic activity that an economy experiences over time.
Expansion (Boom)
Expansion (Boom)
Characterized by increasing national output, employment, demand, and spending.
Peak (Boom or Prosperity)
Peak (Boom or Prosperity)
The highest point of the business cycle.
Contraction (Downswing or Recession)
Contraction (Downswing or Recession)
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Trough (Depression)
Trough (Depression)
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Leading Indicators
Leading Indicators
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Lagging Indicators
Lagging Indicators
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Coincident Indicators
Coincident Indicators
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Fluctuations in Effective Demand
Fluctuations in Effective Demand
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Fluctuations in Investment
Fluctuations in Investment
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Money Supply
Money Supply
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Psychological Factors
Psychological Factors
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External Causes
External Causes
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Great Depression of 1930
Great Depression of 1930
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Information Technology bubble burst of 2000
Information Technology bubble burst of 2000
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Global Economic Crisis (2008-09)
Global Economic Crisis (2008-09)
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Recovery
Recovery
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Features of Business Cycles
Features of Business Cycles
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Flashcards
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Study Notes
Study Notes
- Business cycles or trade cycles refer to rhythmic fluctuations in aggregate economic activity that an economy experiences over time.
- These fluctuations are evident in measures like gross national product, employment, and income.
Phases of Business Cycle
- Expansion, also termed Boom or Upswing, features a rise in national output and overall economic variables.
- Peak, also termed Boom or Prosperity, signifies the upper turning point or the summit of the business cycle.
- Contraction, known as Downswing or Recession, denotes a fall in the levels of investment and employment.
- Trough or Depression marks the conclusion of the recession, characterized by severe contraction in economic activities.
Economic Indicators
- Changes in various activities are used to measure the business cycle and predict economic direction, known as indicators.
- Leading indicators change before the economy follows a trend and are used to predict economic shifts.
- Lagging indicators change after real output changes.
- Coincident indicators, also called concurrent indicators, occur simultaneously and indicates the current state of the business cycle.
Examples of Business Cycles
- Great Depression of 1930 caused global GDP to fall by 15% between 1929 and 1932, resulting in widespread economic distress.
- The recovery from the Great Depression was aided by increased money supply and government spending.
- Information Technology bubble covered 1997-2000 and led to failing companies once the bubble burst in 1999-2001.
- The recent global economic crisis owes its origin to US financial markets in 2008-09 which started with the US housing market.
Features of Business Cycles
- No economy follows a perfectly timed cycle and that the business cycles are anything but regular.
- Business cycles occur periodically but lack regularity in duration and intensity.
- Phases seldom display smoothness or regularity.
- Length of each phase is not definite.
- Generally originates in free market economies.
- Affect most sectors.
- Affect some sectors such as capital goods industries, durable consumer goods industry disproportionately.
- They do not have uniform characteristics and causes.
- They are caused by varying factors.
- They are hard to predict.
- Cause repercussions felt on nearly all economic variables, viz. output, employment, investment, consumption, interest, trade, and price levels.
- Contagious and international in character.
Causes of Business Cycles
- Fluctuations in aggregate effective demand are a cause with higher demand induces more production and more income and employment.
- High aggregate demand can cause inflation which will trigger a low output and income.
- Fluctuations in investments are considered the prime cause of business cycles.
- Variations in government spending can cause business fluctuations.
- Macroeconomic policies, both monetary and fiscal, also cause business cycles.
- Changes in money supply cause business fluctuation.
- Psychological factors can cause business cycle, according to business community's optimism or pessimism.
- Trade cycles occur due to innovations which take place in the system from time to time.
External (Exogenous) Factors
- Wars divert resources to war goods, decreasing production of other goods and causing economic contraction.
- Post-War Reconstruction leads to increased economic activity.
- Technology Shocks occur through production of new and better products
- Causes big investments in new technology and leads to expansion of production output.
- Weather cycles cause fluctuations and cause instability in agricultural output.
- Higher rates cause less saving and less income and employment, slowing economic activity.
The relevance of business cycles in business decision-making
- Understanding the business cycle and economic conditions and forecasts helps businesses anticipate the market.
- Affects the demand for their products and in turn their profits which ultimately determines whether a business is successful or not.
- Knowledge regarding business cycles and their inherent characteristics is important for a businessman to frame appropriate policies.
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