Unit 12

According to the U.S. Commerce Department, the economy is in a depression when a decline in real output of goods and services lasts A) 18 months or more (6 quarters). B) beyond 12 months (4 quarters). C) 6 months or more (2 quarters). D) 9 months or more (3 quarters).

A) 18 months or more (6 quarters).

Which segment of the business cycle would one expect to find rising interest rates and higher wages? A) Expansion B) Recession C) Contraction D) Trough

A) Expansion

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

A) Mild inflation can encourage growth and stimulate the economy.

Which of the following refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment? A) Stagnation B) Deflation C) Stagflation D) Trough

A) Stagnation

Economists refer to longer, more severe contractions in the economy as A) depressions. B) recessions. C) declines. D) depletions.

A) depressions.

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

A) falling inventories.

Reports of rising inventories generally occur during which period of the business cycle? A) Peak B) Contraction C) Recovery D) Expansion

B) Contraction

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

B) Deflation

Which of the following is considered to be the order of the stages in a business cycle? A) Peak, expansion, contraction, trough B) Expansion, peak, contraction, trough C) Contraction, trough, peak, expansion D) Trough, contraction, expansion, peak

B) Expansion, peak, contraction, trough

In what order do the following economic phases typically occur? I. Recovery II. Trough III. Decline IV. Prosperity A) III, IV, I, II B) I, IV, III, II C) IV, III, I, II D) II, I, III, IV

B) I, IV, III, II

Which of the following are characteristics of the expansion phase of the business cycle? A) Rising inventories B) Increase industrial production C) Increasing defaults D) Higher consumer debt

B) Increase industrial production

During periods of economic decline and contraction, one would expect A) consumer demand to increase. B) gross domestic product (GDP) to decrease. C) inventories to decrease. D) production to rise.

B) gross domestic product (GDP) to decrease.

Rising employment due to an increase in demand for goods and services would be associated with periods of A) deflation. B) inflation. C) stagflation. D) stagnation.

B) inflation.

Which of the following groupings might indicate the economy is contracting? A) Inventories are at record lows, stock prices are at record highs, and bankruptcies are falling. B) Consumer borrowing is low, property values are high, and stock prices are falling. C) Bond defaults are rising, inventories are rising, and GDP is falling. D) Bond prices are falling, stock prices are rising, and GDP is rising.

C) Bond defaults are rising, inventories are rising, and GDP is falling.

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) Changes in the business cycle B) Federal Reserve Board (FRB) policies C) Political elections D) The company's earnings

C) Political elections

Recent reports indicate that the gross domestic product (GDP) has been declining steadily over the past two quarters. This would suggest A) an inflationary period. B) a depression. C) a recession. D) an economic expansion.

C) a recession.

An expansion in the business cycle would be characterized by A) higher consumer debt and rising inventories. B) increasing college enrollments and enlistment in military service. C) increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. D) increase in want ads in newspapers and decrease in nonfarm jobs.

C) increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values.

The business cycle includes all of the following classifications except A) peak. B) trough. C) waves. D) expansion.

C) waves.

According to the U.S. Commerce Department, the economy is in a recession when a decline in real output of goods and services lasts A) beyond 12 months. B) 9 months or more. C) 18 months or more. D) 6 months or more.

D) 6 months or more.

Which of the following are characteristics of an economic downturn? A) Decreasing defaults B) Decreasing inventories C) Increasing industrial production D) Higher consumer debt

D) Higher consumer debt

U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to A) increase. B) initially increase sharply and then decrease. C) remain the same. D) decrease.

D) decrease.

Economists call mild, short-term contractions A) depressions. B) declines. C) troughs. D) recessions.

D) recessions.