Unit 12: business cycle

How is Contraction in the business cycle characterized?

#Downturns -rising numbers of bankruptcies and bond defaults -higher consumer debt -falling stock prices -risking inventories (a sign of slackening consumer demand in hard times) -DECREASING GDP

How is a Trough Characterized in the business cycle?

- HIGH unemployment -flat GDP -low inflation - low but NOT decreasing consumer demand

How is expansion in the business cycle characterized?

- increased consumer demand for goods and services - increases in industrial production -risking stock prices -rising property values -increasing GDP

How is peak or prosperity phase of the business cycle characterized?

- very low unemployment -slowdown in inflation -slowing of GDP -steady consumer demand

Downturns in the business cycle or economic contractions are characterized by all of the following except A) rising numbers of bond defaults. B) falling inventories. C) rising numbers of bankruptcies. D) higher consumer debt.

B) falling inventories. When the economy is contracting, inventories tend to rise (not fall) due to a decreasing demand for goods.

Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment? A) Deflation B) Stagnation C) Mild inflation D) High inflation

C) Mild inflation Inflation is a general increase in prices. Mild inflation encourages economic growth because gradually increasing prices stimulate business investment. High inflation reduces a dollar's buying power, which hurts the economy.

Just as markets can be influenced by many factors, so can the market price of a single company's stock. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact? A) The company's earnings B) Changes in the business cycle C) Political elections D) Federal Reserve Board (FRB) policies

C) Political elections The price of a company's stock will be impacted directly by the company's earnings and changes in the business cycle. Less directly impactful would be FRB policies to loosen or tighten credit, and least likely to have a direct impact would be the outcome of political elections. It should be noted, however, that the outcome of political elections can influence FRB policies over time and, therefore, where the economy stands in relation to the business cycle. Still, however, elections would have less of an immediate impact.

Which of the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising. A) Contraction B) Stagnation C) Stagflation D) Deflation

D) Deflation Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.

Different degrees of inflation can impact the economy differently. Which of the following best reflects this? A) High inflation spurs the economy forward by increasing the demand for goods. B) Mild inflation can thwart business investments and slow economic growth. C) High inflation pushes prices to their highest levels, continuously pushing the economy higher. D) Mild inflation can encourage growth and stimulate the economy.

D) Mild inflation can encourage growth and stimulate the economy. While mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments, high inflation pushes prices up, reducing the U.S. dollar's buying power. Ultimately, high inflation hurts the economy.

Those industries that are least affected by normal business cycles are A) special situation. B) defensive industries. C) growth industries. D) cyclical industries.

D) cyclical industries. Defensive industries are least affected by normal business cycles. Companies in defensive industries produce nondurable consumer goods, such as food, pharmaceuticals, and tobacco or supply essential services such as those supplied by utility companies. Public consumption of such goods remains fairly steady throughout the business cycle.

Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would best be described as A) growth. B) Keynesian. C) defensive. D) cyclical.

D) cyclical. Cyclical industries are highly sensitive to business cycles (the ups and downs of business trends) and inflationary or deflationary trends. Most cyclical industries produce durable goods, such as heavy machinery, or material such as steel to be utilized by other industries like the automobile industry. Demand for such goods increases when we are in periods of prosperity but during recessions, the demand for such products declines as manufacturers postpone investments in new capital goods and consumers postpone purchases of these goods.

What is expanisoon

Expansion is when the economy reaches the prior peak and continues to grow.

How many cycles do business cycles go through?

Four: Expansion, Peak, Contraction, Trough

What is a depression

If a contraction continues for 18 months

What is recovery?

The period of growth from the trough to the prior peak.

What is it called when the economy fluctuates between growth and contraction in a regular cycle?

This concept is known as The Business Cycle

What is a recession?

When the economy enters an extended period of contractions that continues for six months or longer