Buisness Cycle

Question 1

Business Cycle

Answer 1

A business/economic cycle illustrates the short-term fluctuations of real GDP over time.

Question 2

Phases of Business Cycle

Answer 2

Expansion
Peak
Recession
Trough

Question 3

Expansion

Answer 3

Positive growth in real GDP, shown by parts of the curve that slope upward general price level/inflation begins to rise

Question 4

Peak

Answer 4

A peak represents the cycles maximum real GDP and marks the end of the expansion, price level is rising quite rapidly/high inflation

Question 5

Recession/contraction

Answer 5

Following the peak, the economy begins to experience falling real GDP shown by downward sloping parts of the curve. If the contraction lasts six months or more it’s termed a recession. Prices may fall.

Question 6

Trough

Answer 6

Represents the cycles minimum level of GDP, or the end of a contraction. There may be widespread unemployment. A trough is followed by a period of expansion/recovery.

Question 7

Actual output

Answer 7

Represents the end of the line, or the current GDP.

Question 8

Potential output

Answer 8

The long-term growth trend in the business cycle illustrates the potential output. (Dashed line)

Question 9

Meaning of potential in the business cycle

Answer 9

Represents working at natural intensity.