Unit 12 Quiz Deck Flashcards
Which of the following are characteristics of the expansion phase of the business cycle?
A) Increasing defaults
B) Rising inventories
C) Increase industrial production
D) Higher consumer debt
C) Increase industrial production
Higher consumer debt, rising inventories, and increasing defaults are characteristics of the decline phase of the business cycle.
Economists refer to longer, more severe contractions in the economy as
A) declines.
B) depressions.
C) recessions.
D) depletions.
B) depressions.
Economists call mild, short-term contractions recessions while longer, more severe contractions are called depressions.
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) 18 months or more.
C) 9 months or more.
D) beyond 12 months.
A) 6 months 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.
Rising employment due to an increase in demand for goods and services would be associated with periods of
A) deflation.
B) stagflation.
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.
Which of the following refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment?
A) Stagnation
B) Trough
C) Stagflation
D) Deflation
A) Stagnation
Economic stagnation refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment.
U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to
A) remain the same.
B) increase.
C) initially increase sharply and then decrease.
D) decrease.
D) 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.
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 recession.
C) a depression.
D) an economic expansion.
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 the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising.
A) Contraction
B) Deflation
C) Stagflation
D) Stagnation
B) Deflation
Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.
During periods of economic decline and contraction, one would expect
A) inventories to decrease.
B) production to rise.
C) gross domestic product (GDP) to decrease.
D) consumer demand to increase.
C) gross domestic product (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.
Which segment of the business cycle would one expect to find rising interest rates and higher wages?
A) Expansion
B) Contraction
C) Recession
D) Trough
A) 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.
Different degrees of inflation can impact the economy differently. Which of the following best reflects this?
A) High inflation pushes prices to their highest levels, continuously pushing the economy higher.
B) Mild inflation can thwart business investments and slow economic growth.
C) Mild inflation can encourage growth and stimulate the economy.
D) High inflation spurs the economy forward by increasing the demand for goods.
C) 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) The company’s earnings
B) Federal Reserve Board (FRB) policies
C) Political elections
D) Changes in the business cycle
C) 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.
Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment?
A) Stagnation
B) High inflation
C) Mild inflation
D) Deflation
C) Mild inflation
Inflation is a general increase in prices. Mild inflation encourages economic growth because gradually increasing prices stimulate business investment. High inflation reduces a dollar’s buying power, which hurts the economy.
Which of the following are characteristics of an economic downturn?
A) Decreasing inventories
B) Increasing industrial production
C) Higher consumer debt
D) Decreasing defaults
C) 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 groupings might indicate the economy is contracting?
A) Bond defaults are rising, inventories are rising, and GDP is falling.
B) Consumer borrowing is low, property values are high, and stock prices are falling.
C) Inventories are at record lows, stock prices are at record highs, and bankruptcies are falling.
D) Bond prices are falling, stock prices are rising, and GDP is rising.
A) 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.
