Economic Indicators and the Business Cycle
What measure of economic activity is often used to gauge the overall health and performance of an economy?
Gross Domestic Product (GDP)
Consumer Price Index (CPI)
Unemployment Rate
Inflation Rate
If the Federal Reserve sets a higher inflation target, what short-term effect might this have on unemployment?
It may increase because of decreased consumer purchasing power.
It remains unchanged as inflation does not affect unemployment.
It may decrease due to the short-run Phillips curve relationship.
It may fluctuate unpredictably due to changes in interest rates.
What is generally expected to happen with consumer spending during an expansion phase of the business cycle?
Only luxury goods spending increases.
There are no changes to consumer spending.
It decreases significantly.
It increases.
If a central bank engages in contractionary monetary policy during an inflationary period what is likely result within business cycles?
It increases price levels further spurring ongoing inflationary trends.
It immediately causes deep recession & high rates unemployment.
It results persistent deflation even if economy not overheating yet.
It slows down economic expansion & helps control inflation.
How would a sustained increase in exchange rate affect the domestic economy of a small open economy heavily dependent on raw material exports?
National saving could increase with the resulting greater investment revenues from foreign sources.
Economic growth may be temporarily utilized as exports become less competitive internationally.
Unemployment levels may rise due to decreasing cost competitiveness and productivity.
Inflation rate could potentially decrease due to lower import costs.
If a country is experiencing high inflation with moderate growth, which monetary policy action could potentially bring down the inflation rate without significantly hindering economic growth?
Lowering the discount rate to stimulate borrowing.
Sharply raising interest rates.
Slightly increasing the reserve requirement ratio.
Engaging in extensive open market purchases.
In response to high inflation rates, how might expansionary fiscal policy affect real GDP in the short run if it results in crowding out?
Real GDP decreases slightly but then stabilizes due to automatic stabilizers moderating fluctuations in output
Real GDP may not increase as intended due to reduced investment spending by firms
Real GDP increases more than expected due to multiplicative effects of increased consumption spending
Real GDP remains unchanged because government spending offsets private sector contraction exactly

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What term describes periods of expansion followed by periods of recession in the economy?
Business cycles
Economy equilibrium
Consumer price index
Market stability
What role does government play when it provides unemployment benefits during a recession?
It discourages workers from seeking employment, prolonging the recession.
It eliminates cyclical unemployment completely by providing jobs to all unemployed workers.
It acts as an automatic stabilizer by supporting aggregate demand.
It directly stimulates production and leads to immediate economic growth.
What is one characteristic of the expansion phase of the business cycle?
Decreasing employment.
Falling stock prices.
Increasing GDP.
Reduced production levels.