Economic Cycle

Question 1

What are the four stages of the economic style?

Answer 1

1. Expansion
2. Peak
3. Contraction
4. Trough

Question 2

What factors influence the economic cycle stages?

Answer 2

1. GDP
2. Interest Rates
3. Total Employment
4. Consumer Spending

Question 3

What happens during an expansion?

Answer 3

1. Rapid Growth
2. Low Interest Rates
3. Increased Production

Question 4

What are some characteristics of an Expansion?

Answer 4

1. Money flow through the economy is healthy.
2. Cost of money is cheap.

Question 5

What can happen with an increase in money supply?

Answer 5

It may trigger inflation.

Question 6

What happens during a peak?

Answer 6

1. Growth rate hits max rate.
2. Businesses may reevaluate budgets and spending.

Question 7

What happens during a contraction?

Answer 7

1. Growth slows
2. Employment falls
3. Prices stagnate
4. Demand decreases

Question 8

What are some characteristics of a trough?

Answer 8

1. Low supply and demand
2. Low spending and income

Question 9

What is a recession and what triggers it?

Answer 9

1. Downturn in economic activity.
2. Triggered by two consecutive quarters of negative GDP.

Question 10

Why should the U.S. have gone through a recession based on historical data?

Answer 10

Historically, a downturn in the housing/mortgage finance market indicates a potential contraction in the market. Low production volume was due to the increased mortgage interest rate environment coupled with increased home prices.

In addition, two consecutive quarters of negative GDP are supposed to indicate a recession. Although this occurred in Q1 and Q2 2022, the economy kept moving through increased gas prices and increased market interest rate environment.