Podcast
Questions and Answers
Which of the following statements about credit cycles is most accurate?
Which of the following statements about credit cycles is most accurate?
- Credit cycles tend to dampen business cycles.
- A typical business cycle includes two or more credit cycles.
- Credit cycles are a potential cause of asset price bubbles. (correct)
An economy has been producing at its full-employment level of output and the price level has been stable. Businesses then begin experiencing unintended decreases in their inventory levels. What does this most likely imply about the short-run outlook for economic growth and inflation?
Economic growth Inflation
An economy has been producing at its full-employment level of output and the price level has been stable. Businesses then begin experiencing unintended decreases in their inventory levels. What does this most likely imply about the short-run outlook for economic growth and inflation?
Economic growth Inflation
- Decreasing Increasing
- Increasing Decreasing
- Increasing Increasing (correct)
Manufacturing and trade sales are best described as a:
Manufacturing and trade sales are best described as a:
- coincident indicator. (correct)
- lagging indicator.
- leading indicator.
Firms' initial responses to an emerging economic contraction are most likely to be:
Firms' initial responses to an emerging economic contraction are most likely to be:
The inventory-to-sales ratio for manufacturing and trade is classified as a:
The inventory-to-sales ratio for manufacturing and trade is classified as a:
As an economic expansion approaches its peak, the economy is most likely to show:
As an economic expansion approaches its peak, the economy is most likely to show:
When the economy enters an expansion phase, the most likely effect on external trade is a(n):
When the economy enters an expansion phase, the most likely effect on external trade is a(n):
A firm's most likely initial response to a cyclical increase in the inventory-to-sales ratio is to adjust their utilization of labor by:
A firm's most likely initial response to a cyclical increase in the inventory-to-sales ratio is to adjust their utilization of labor by:
A peak in the business cycle is most likely associated with:
A peak in the business cycle is most likely associated with:
Which of the following economic indicators is classified as a leading indicator for the United States economy?
Which of the following economic indicators is classified as a leading indicator for the United States economy?
Increases in firms' inventory-sales ratios are most likely to occur:
Increases in firms' inventory-sales ratios are most likely to occur:
The expansion phase of a business cycle is most likely characterized by:
The expansion phase of a business cycle is most likely characterized by:
Average weekly initial claims for unemployment insurance are classified as a:
Average weekly initial claims for unemployment insurance are classified as a:
During an economic contraction:
During an economic contraction:
Flashcards
Credit Cycles
Credit Cycles
Credit cycles amplify business cycles and can cause asset price bubbles. They tend to be longer than business cycles.
Inventory Decrease Implication
Inventory Decrease Implication
In long-run equilibrium, unintended inventory decreases suggest increased aggregate demand, leading to higher output and prices.
Coincident Indicator
Coincident Indicator
Manufacturing and trade sales that reflect the current stage of the business cycle.
Initial Response to Contraction
Initial Response to Contraction
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Inventory-to-Sales Ratio Timing
Inventory-to-Sales Ratio Timing
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Late Expansion Indicator
Late Expansion Indicator
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Expansion and Imports
Expansion and Imports
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Response to Rising Ratio
Response to Rising Ratio
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Business Cycle Peak
Business Cycle Peak
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Consumer Expectations
Consumer Expectations
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Inventory-to-sales Peak
Inventory-to-sales Peak
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Expansion Phase
Expansion Phase
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Unemployment Claims
Unemployment Claims
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Economic Contraction
Economic Contraction
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Study Notes
- Credit cycles tend to amplify business cycles and can potentially cause asset price bubbles.
- Credit cycles have been longer than business cycles, on average.
- Unintended decreases in inventory levels suggest aggregate demand has increased, leading producers to increase output and prices in the short run.
- During long-run equilibrium, economic growth and inflation will likely increase due to unintended decreases in inventory levels.
- Manufacturing and trade sales are a coincident indicator, reflecting the business cycle's current phase.
- Cutting overtime is a common early response by firms to an emerging economic contraction, reducing output by utilizing capital and labor less intensively.
- Firms decrease capacity by laying off workers and reducing physical capital, by deferring maintenance or not replacing worn-out equipment, when they believe a contraction is likely to persist.
- The inventory-to-sales ratio for manufacturing and trade is a lagging indicator.
- The inventory-to-sales ratio peaks after the economy does, but is sometimes used in forecasting economic activity.
- As an economic expansion nears its peak, sales growth slows, leading to accumulating unsold inventories and an increasing inventory-to-sales ratio.
- When a domestic economy expands, import demand rises alongside domestic incomes.
- Exports relate more to the economic growth of trading partners than to domestic growth.
- An increasing inventory-to-sales ratio indicates slowing economic growth
- Firms typically reduce overtime in response to a slowing economy before considering layoffs.
- The peak phase represents the highest level of economic output (real GDP).
- Inflation pressure may continue into the early part of the contraction following the peak.
- Employment typically declines sometime after the peak.
- Consumer expectations serve as a leading indicator.
- Industrial production serves as a coincident indicator.
- The average duration of unemployment is a lagging indicator.
- Inventory-to-sales ratios are most likely to increase just before a peak in the economic cycle.
- Sales slow, and inventory accumulates as production and inventory levels still reflect expectations of continued rapid growth.
- Increasing employment characterizes the expansion phase of a business cycle.
- Initial unemployment insurance claims are a leading indicator.
- Decreasing inflation pressures, increasing unemployment and low/negative real GDP growth characterize an economic contraction.
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