The Business Cycle

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Which statement best describes why it is difficult to sell a home during a recession?

a.) Mortgage rates are high.

b.) Demand greatly decreases.

c.)Mortgages become unavailable.

d.) Housing prices increase.

Demand greatly decreases.

Which best describes how a recession develops as demand and production decrease?

a.)The recession accelerates.

b.) The recession spirals out of control

c.)The recession feeds on itself.

d.) The recession starts and stops.

The recession feeds on itself.

Which of the following conditions is most indicative of recovery?

a.) The economy has stopped shrinking.

b.) The economy begins to peak.

c.) The economy has passed the trough.

d.) The economy is growing again.

The economy is growing again.

Which best describes what is represented in the business cycle model?

a.) the interactions between producers and consumers

b.) the change in production cost

c.) macroeconomic trends

d.) supply and demand trends

macroeconomic trends

There are four stages in an economic recovery.

1. increased production

2. rising demand (occurs twice)

3. increased hiring

In which order do these stages occur?

a.) 2, 1, 2, 3

b.) 3, 2, 1, 2

c.) 2, 3, 1, 2

d.) 2, 1, 3, 2

2, 1, 3, 2

The graphs show the US unemployment rate and the price of whole milk between 2006 and 2012.

What do these graphs indicate about the relationship between employment levels and prices during economic cycles?

a.) There is no link between prices and unemployment.

b.) Rising unemployment rates drive prices higher.

c.) Falling prices drive unemployment rates lower.

d.) As unemployment rates rise, average prices fall.

As unemployment rates rise, average prices fall.

During a recession, what is one way governments try to encourage growth?

by increasing unemployment benefits

by stopping government spending

by requiring firms to maintain production

by eliminating all tax breaks

NOOOOT by stopping government spending

Which statements best describe how governments respond to changes in the business cycle? Check all that apply.

1.) Governments make currency more available
2.) Governments refuse to pass a budget.

3.) Governments change their policies.

4.) Governments reduce spending.

5.) Governments manipulate interest rates.

NOT 1, 3, 4 NOT 3, 4

Which scenario best reflects the relationship between production and demand in a recession?

a.) Car dealerships have minimal overstock.

b.) Car dealerships are not restocking.

c.) Car dealerships cannot sell their stock.

d.) Car dealerships cannot obtain stock.


There are five stages in a recession.

1. job loss

2. falling production

3. falling demand (occurs twice)

4. peak production

In which order do these stages occur?

a.)4, 3, 2, 1, 3

b.) 3, 2, 1, 3, 4

c.) 4, 3, 2, 3, 1

d.) 4, 2, 3, 1, 3

A.) 4, 3, 2, 1, 3

Which event most likely explains renewed demand in a recovery period?

a.) Increased employment means increased availability of funds.

b.) Need, and therefore demand, increases as goods wear out.

c.) Producers decrease prices to prompt demand and

d.) Economic policy renews consumer confidence and, hence, demand.


Which of the following is a characteristic of the prosperity phase of the business cycle?

stagnant prices

high levels of production

ambivalence about the economy

reduced incomes

high levels of production

When production is very high but demand is very low, it can lead to

a recession.

a recovery.


the peak.

a recession

Which indicators do economists use to determine the state of the economy? Check all that apply.


2.)immigration levels

3.) agricultural output

4.) employment levels

5.) gross domestic product (GDP)

1,4, 5

Which best describes the nature of cause and effect in the context of the business cycle?

Each effect has other effects.

Causes and effects cannot be easily defined.

A cause has multiple independent effects.

Each effect has a cause.

Each effect has other effects.

Read a passage from a speech given by President Barack Obama.

Because of this plan, families who are struggling to pay tuition costs will receive a $2,500 tax credit . . . And Americans who have lost their jobs in this recession will be able to receive extended unemployment benefits.

-President Barack Obama,
February 4, 2009

Which statement best explains this passage?

It describes government measures to stimulate demand and bring about a recovery.

It describes government measures to increase production and bring about a depression.

It describes a shift in government policies during a trough on the business cycle.

It describes a shift in government policies during a peak on the business cycle.

A– It describes government measures to stimulate demand and bring about a recovery.

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