Deck 8: Business Cycles

Question 1

The longest contraction in Canadian history occurred

A)during the 1870s.
B)in the years right before World War I began.
C)during the 1930s.
D)during the 1970s.

Answer 1

during the 1870s.

Question 2

Which of the following variables is procyclical?

A)unemployment
B)nominal interest rate
C)real interest rate
D)real wage

Answer 2

nominal interest rate

Question 3

The tendency of many different economic variables to have regular and predictable patterns across industries over the business cycle is called

A)persistence.
B)comovement.
C)periodicity.
D)recurrence.

Answer 3

comovement.

Question 4

When aggregate economic activity is increasing,the economy is said to be in

A)an expansion.
B)a contraction.
C)a peak.
D)a turning point.

Question 5

The deepest contraction in Canadian history occurred

A)during the 1870s.
B)in the years right before World War I began.
C)during the 1930s.
D)during the 1970s.

Question 6

Business cycles all display the following characteristics except

A)a period of expansion followed by one of contraction.
B)co-movement of many economic variables.
C)rising prices during an expansion and falling prices during the contraction.
D)they last a period of one to twelve years.

Question 7

When aggregate economic activity is declining,the economy is said to be in

A)a contraction.
B)an expansion.
C)a trough.
D)a turning point.

Question 8

The high point in the business cycle is referred to as the

A)expansion.
B)boom.
C)peak.
D)turning point.

Question 9

An economic variable that moves in the opposite direction as aggregate economic activity (down in expansions,up in contractions)is called

A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.

Question 10

A variable that tends to move in advance of aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 11

The fact that business cycles are periodic but not recurrent means that

A)business cycles occur at predictable intervals,but do not last a predetermined length of time.
B)the business cycle's standard contraction-trough-expansion-peak pattern has been observed to recur over and over again,but not at predictable intervals.
C)business cycles occur at predictable intervals,but do not all follow a standard contraction-trough-expansion-peak pattern.
D)business cycles last a predetermined length of time,but do not all follow a standard contraction-trough-expansion-peak pattern.

Question 12

The low point in the business cycle is referred to as the

A)contraction.
B)recession.
C)trough.
D)depression.

Question 13

The longest economic expansion in Canada occurred during the

A)1920s.
B)1940s.
C)1960s.
D)1980s.

Question 14

An economic variable that moves in the same direction as aggregate economic activity (up in expansions,down in contractions)is called

A)procyclical.
B)countercyclical.
C)acyclical.
D)a leading variable.

Question 15

The tendency for declines in economic activity to be followed by further declines,and for growth in economic activity to be followed by more growth is called

A)persistence.
B)comovement.
C)periodicity.
D)recurrence.

Question 16

An economic variable that doesn't move in a consistent pattern with aggregate economic activity is called

A)procyclical.
B)countercyclical
C)acyclical.
D)a leading variable.

Question 17

By 1937,when a new recession began in the midst of the Great Depression,

A)GDP had almost recovered to its 1929 level,but unemployment was still above the 1929 level.
B)unemployment had almost fallen back to its 1929 level,but GDP had yet to recover to its 1929 level.
C)neither GDP nor unemployment had returned to near their 1929 levels.
D)both GDP and unemployment had returned to near their 1929 levels.

Question 18

Turning points in business cycles occur when

A)a new business cycle is initiated at the trough.
B)the economy hits the peak or trough in the business cycle.
C)the business cycle begins to follow a new pattern that differs from previous business cycles.
D)a new business cycle is initiated at the peak.

Question 19

The worst recessions after World War II occurred

A)during 1945-1946 and 1973-1975.
B)during 1957-1958 and 1973-1975.
C)during 1953-1954 and 1981-1982.
D)during 1945-1946 and 1981-1982.

Question 20

Research on the effects of recessions on the real level of GDP shows that

A)recessions cause only temporary reductions in real GDP,which are offset by growth during the expansion phase.
B)recessions cause large,permanent reductions in the real level of GDP.
C)recessions cause both temporary and permanent declines in real GDP,but most of the decline is temporary.
D)recessions cause both temporary and permanent declines in real GDP,but most of the decline is permanent.

Question 21

Which of the following statements is NOT true about the Canadian business cycle?

A)In the early 20th century,there were almost as many months of contraction as months of expansion.
B)From 1945 to 2001,the number of months of expansion outnumbered the months of contraction by more than five to one.
C)The worst economic contraction in the history of Canada was the Great Recession of 2008.
D)Strong economic recoveries were associated with World War I and World War II.

Question 22

Which of the following is true?

A)Employment and unemployment are both coincident with the business cycle.
B)Employment and unemployment are both procyclical.
C)Employment is procyclical and unemployment is coincident with the business cycle.
D)Employment is procyclical and unemployment is countercyclical.

Question 23

A variable that tends to move later than aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 24

Which of the following macroeconomic variables doesn't vary much over the seasons?

A)the nominal money stock
B)the unemployment rate
C)the real wage
D)average labour productivity

Question 25

Inventory investment displays business cycle patterns that differ from other forms of expenditure because

A)inventory investment is countercyclical,but expenditures are generally procyclical.
B)inventory investment is procyclical,but expenditures are generally coincident with the business cycle.
C)inventory investment displays large fluctuations that are not associated with business cycle peaks and troughs.
D)inventory investment lags the business cycle,but expenditures generally lead the business cycle.

Question 26

Wars,new inventions,harvest failures,and changes in government policy are examples of

A)the business cycle.
B)economic models.
C)shocks.
D)opportunity costs.

Question 27

Which of the following macroeconomic variables is NOT seasonally procyclical?

A)the nominal money stock
B)average labour productivity
C)the unemployment rate
D)government spending

Question 28

Industries that are extremely sensitive to the business cycle are the

A)durable goods and service sectors.
B)nondurable goods and service sectors.
C)capital goods and nondurable goods sectors.
D)capital goods and durable goods sectors.

Question 29

Using the seasonal business cycle as your guide,during which quarter would you be most likely to expect a drop in your corporation's sales?

A)the first quarter of the year (January-March)
B)the second quarter of the year (April-June)
C)the third quarter of the year (July-September)
D)the fourth quarter of the year (October-December)

Question 30

Which of the following best describes the Canadian index of leading indicators?

A)The index heavily relies on the Toronto Stock Exchange 300.
B)The index's components are not sensitive to business cycles.
C)It provides information on the exact timing and the severity of future recessions.
D)The index is a weighted average of 10 economic variables that lead the business cycles in Canada.

Question 31

Which of the following statements is true?

A)Both nominal and real interest rates are procyclical and leading.
B)Both nominal and real interest rates are procyclical and lagging.
C)Nominal interest rates are procyclical and real interest rates are countercyclical.
D)Nominal interest rates are procyclical and real interest rates are acyclical.

Question 32

Which of the following macroeconomic variables is procyclical and leads the business cycle?

A)business fixed investment
B)the money supply
C)nominal interest rates
D)unemployment

Question 33

Economists use the term shocks to mean

A)unexpected government actions that affect the economy.
B)typically unpredictable forces that have major impacts on the economy.
C)sudden rises in oil prices.
D)the business cycle.

Question 34

What are the two main components of business cycle theories?

A)a description of shocks and a model of how the economy responds to them
B)a model of how people decide to spend and a description of the government's role in the economy
C)a model of how equilibrium is reached and a description of the government's role
D)a description of shocks and a description of the government's role in the economy

Question 35

Which of the following macroeconomic variables is countercyclical?

A)real interest rates
B)unemployment
C)the money supply
D)consumption

Question 36

Some economists contend that the economywide average real wage may NOT be a good indicator of the real wage because

A)when previously unemployed workers enter the work force,the average real wage could decline even if all workers' wages have increased.
B)it fails to reflect productivity changes.
C)it fails to reflect qualitative changes in goods.
D)data used to calculate the average real wage is not collected from all sectors of the economy.

Question 37

You want to invest in a firm whose profits show small fluctuations throughout the business cycle.Which of the following would you invest in?

A)a corporation that depended heavily on business fixed investment
B)a corporation that depended heavily on residential investment
C)a corporation that depended heavily on consumer nondurables
D)a corporation that depended heavily on consumer durables

Question 38

Which of the following macroeconomic variables is procyclical and coincident with the business cycle?

A)residential investment
B)nominal interest rates
C)industrial production
D)unemployment

Question 39

Which of the following macroeconomic variables is procyclical and lags the business cycle?

A)business fixed investment
B)employment
C)stock prices
D)nominal interest rates

Question 40

A variable that tends to move at the same time as aggregate economic activity is called

A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.

Question 41

One of the reasons for less volatility in the economy is

A)better monetary policy.
B)increasing financial market activities.
C)higher productivity.
D)advances in technology.

Question 42

Which of the following activities is less sensitive to the business cycles?

A)car manufacturing
B)computer industry
C)insurance services
D)building material

Question 43

Which of the following is true about the business cycles in Canada?

A)The largest contractions were experienced in 1920 and 1929.
B)The economy grew strongly after World War II.
C)The 1991 recession was longer but shallower than the 1981 recession.
D)All of the above.

Question 44

Explain the index of leading indicators,its applications,and its potential problems.

Question 45

Describe the major features of the business cycle.Be sure to discuss what variables are affected by the cycle,a description of the key features that are apparent in the data,how variables are related to one another,how regular the cycle is,and how predictable the cycle is.

Question 46

List five macroeconomic variables which are procyclical and indicate whether they are leading,lagging,or coincident variables.

Question 47

When a recession occurs,do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?

Question 48

Which of the following is NOT true about the business cycles?

A)Nominal interest rates are procyclical and lagging.
B)Real interest rates are countercyclical and leading.
C)Stock prices are procyclical and leading.
D)Inflation is procyclical and lagging.

Question 49

For each outcome below,tell what type of shift must have taken place in either the aggregate demand curve or the long-run aggregate supply curve.
a.In the short run,the price level is unchanged and output rises.
b.In the long run,the price level declines and output is unchanged.
c.In the long run,the price level rises and output declines.

Question 50

How has the severity and duration of business cycles changed over time in Canada?

Question 51

The two deepest recessions in Canada's history occurred in

A)2000 and 2008.
B)1981 and 1991.
C)1961 and 1981.
D)1920 and 1929.

Question 52

Explain how nominal money growth varies across the business cycles and why it is volatile.

Question 53

Describe briefly what are the major differences between the classical economists and the Keynesian economists with regard to causes of business cycles,long-run adjustments to shock,and the government policies in restoring the full employment.

Question 54

Which of the following statements is true?

A)Financial variables are procyclical,but real variables are countercyclical.
B)The nominal interest rate is procyclical and lagging,but the real interest rate is acyclical.
C)Average labour productivity is acyclical,but the real wage is procyclical.
D)Both exports and imports are procyclical.

Question 55

What are some of the problems with using the leading indicators to forecast recessions? If you were a policymaker,would you rely on them?

Question 56

Which of the following is true about the business cycles?

A)Production and expenditures are procyclical.
B)Employment is procyclical,but unemployment is countercyclical.
C)Inflation and money growth are procyclical.
D)All of the above.

Question 57

Explain why durable goods are more sensitive than semi- and non-durable goods to the business cycles.

Question 58

Which of the following sectors respond strongly to the business cycles?

A)food products
B)clothing products
C)education services
D)computer products