The Business Cycle

Why might buying a home during a recession be a good decision for some consumers?

-Housing prices are down. -Less demand means more options for buyers. -Less demand means less competition with other buyers.

Which indicators do economists use to determine the state of the economy?

-gross domestic product (GDP) -employment levels

These are the four stages of the business cycle. 1. depression 2. prosperity 3. recession 4. recovery In which order do these stages occur?

2,3,1,4

There are five stages in a recession. 1. job loss 2. falling production 3. falling demand (occurs twice) 4. peak production In which order do these stages occur?

3, 2, 1, 3, 4

Which scenario best reflects the relationship between production and demand in a recession?

Car dealerships cannot obtain stock.

Which event best describes why it is difficult to sell a home during a recession?

Demand greatly decreases.

Which best describes the nature of cause and effect in the context of the business cycle?

Each effect has a cause

Which best describes how governments respond to changes in the business cycle?

Governments reduce spending.

Which of the following events most likely explains renewed demand in a recovery period?

Increased employment means increased availability of funds.

What do these graphs indicate about the relationship between employment levels and prices during economic cycles?

Rising unemployment rates drive prices higher.

Which of the following conditions is most indicative of recovery?

The economy is growing again.

Which best describes how a recession develops as demand and production decrease?

The recession feeds on itself.

recession

a decline in the business cycle, when people produce and spend less

business cycle

a model of economic change that shows a pattern of growth and decline

depression

a time when the ecnomy is very poor and there is a high rate of unemployment

recovery

an upturn in the business cycle, when people produce and spend more

During a recession, what is one way governments try to encourage growth?

by stopping government spending

Which of the following is a characteristic of the prosperity phase of the business cycle?

high levels of production

Which best describes what is represented in the business cycle model?

macroeconomic trends

Income reaches the highest level at the __________ point of the business cycle.

prosperity

production

the creation of goods and services in an economy