Unit 12 SIE

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) 6 months or more (2 quarters). C) beyond 12 months (4 quarters). D) 9 months or more (3 quarters).

A. 18 months or more (6 quarters) The U.S. Commerce Department defines a depression as a decline in real output of goods and services lasting 18 months or more (6 quarters).

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) 6 months or more. B) beyond 12 months. C) 9 months or more. D) 18 months or more.

A. 6 moths or more The U.S. Commerce Department defines a recession as a decline in real output of goods and services for six months or more.

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

A. Contraction Downturns in the business cycle (a contraction) tend to be characterized by rising inventories (a sign of slackening consumer demand). During expansion (recovery is a synonym) and peak, goods are usually moving as fast as they can be produced with little chance of buildup in inventories.

Inflation is most closely associated with which phase of the business cycle? A) Expansion B) Recovery C) Contraction D) Prosperity

A. Expansion Inflation is most associated with the expansion phase of the economy. During this phase, consumer demand has outstripped the economy's ability to produce more goods. The result is too few goods and too many buyers.

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

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

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

A. Higher consumer debt In the early stages of an economic downturn it is normal to see a spike in consumer debt. Consumers, assuming the drop in income is temporary, may use debt to maintain their lifestyle. Decreasing inventories, increasing industrial production, and decreasing defaults are all characteristics of an economic expansion.

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

A. increase industrial production Higher consumer debt, rising inventories, and increasing defaults are characteristics of the decline phase of the business cycle.

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

B. Bond defaults are rising, inventories are rising, and GDP is falling The only grouping where all factors point toward a contracting or downward economy is the one showing bond defaults rising, inventories rising, and GDP falling. Other signs of a contracting economy would be falling stock prices, rising bankruptcies and bond defaults, higher consumer debt (borrowing), and falling property values.

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

B. Gross Domestic Production (GDP) to decrease During periods of economic decline and contraction, GDP, the measure of goods and services produced, decreases. This decrease is due to a lack of consumer demand for goods and services during economic declines, which leads to rising inventories and continued lessening in production.

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

B. a recession A recession is defined as six consecutive months (two quarters) or more of economic decline. By contrast, a depression is six consecutive quarters of economic decline.

Which of these places the phases of the business cycle in the correct order? A) Expansion, contraction, trough, and recovery B) Peak, contraction, recovery, and prosperity C) Contraction, trough, expansion, and peak D) Trough, recovery, contraction, and prosperity

C. Contraction, trough, recovery, and prosperity The order should be peak (or prosperity), contraction, trough, recovery or expansion. For the test, the business cycle may begin with any of these four phases. Officially, business cycles begin with a recovery, but this question asks you to put the phases in the correct order without regard for where in the cycle we start.

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

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

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

C. Expansion Expansions in the business cycle are characterized by increasing consumer demand for goods and services and increasing industrial production. One would expect these increases to lead to rising interest rates as demands for loans for purchases increases and higher wages for workers as production increases.

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

C. Waves Throughout modern history, periods of economic expansion have been followed by periods of contraction in a pattern referred to as the business cycle or economic cycle. Business cycles go through four stages; expansion, peak, contraction, and trough.

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

C. stagnation Economic stagnation refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment.

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

D. Depressions Economists call mild, short-term contractions recessions while longer, more severe contractions are called depressions

Different degrees of inflation can impact the economy differently. Which of the following best reflects this? A) Mild inflation can thwart business investments and slow economic growth. B) High inflation spurs the economy forward by increasing the demand for goods. 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.

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) The company's earnings C) Federal Reserve Board (FRB) policies D) Political elections

D. 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.

The nation has passed through very trying economic times. Many have lost jobs and are tapping into savings to maintain their lifestyles. The economy is not weakening and shows a few signs of growth, but the damage from the downturn is very visible. The nation is likely entering a period of A) trough. B) disaster. C) deflation. D) recovery.

D. Recovery Recovery is the best answer. A recovery occurs when the economy begins to show some signs of growth after a period of contraction. The period of the trough (bottom) along with deflation and economic disaster are hopefully behind the nation.

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

D. increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values Expansions in the business cycle are characterized by increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. Each of the remaining characterizations would more likely be associated with periods of contraction in the economic business cycle.

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

D. inflation During inflationary periods, prices are rising due to a rising demand for goods and services. This will have the effect of creating more employment. Conversely, when the economy slows down, employment generally falls and claims for unemployment benefits will rise.

GDP turned negative in the first quarter of the year, and was negative again in the second quarter. It is now August and numbers have not improved. The economy is experiencing A) stagflation. B) denial. C) depression. D) recession.

D. recession The contraction has continued for at least six months; a recession. A depression occurs for a longer period than what is described here. Stagflation, though not good, does not mean a contraction. Denial is not a term associated with the economy's state.

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

C. decrease GDP is the measure of good and services produced. If U.S. consumers are importing more foreign goods, it is likely that production of U.S. goods will fall off, leading to a decrease in the GDP.

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

C. recessions Economists call mild, short-term contractions recessions. Longer, more severe contractions are depressions.