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Business Cycles and Economic Indicators Flashcards

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  1. Which phase of the business cycle is characterized by peak economic activity, low unemployment, and high consumer spending followed by a turning point?

    Answer: Peak

    The peak is the highest point of economic activity in a business cycle, marking the end of expansion before contraction begins.

  2. The National Bureau of Economic Research (NBER) defines a recession as:

    Answer: A significant decline in economic activity lasting more than a few months, visible across multiple sectors

    The NBER uses a broader definition based on depth, diffusion, and duration across multiple economic measures, not just the two-quarter GDP rule.

  3. Which economist is most associated with the theory that business cycles are driven by waves of technological innovation and creative destruction?

    Answer: Joseph Schumpeter

    Joseph Schumpeter developed the theory of creative destruction and linked long business cycles to waves of technological innovation.

  4. During the contraction phase of a business cycle, which set of conditions typically occurs?

    Answer: Declining output, rising unemployment, and reduced consumer spending

    The contraction phase is defined by falling economic output, rising unemployment, and reduced consumer spending as activity slows from the peak.

  5. The Kitchin cycle, with an approximate period of 3–5 years, is primarily associated with which economic driver?

    Answer: Inventory adjustments by businesses

    The Kitchin cycle is driven by short-term inventory adjustments as firms respond to discrepancies between production and sales.

  6. Which of the following is classified as a leading economic indicator?

    Answer: Building permits issued for new private housing

    Building permits are a leading indicator because construction commitments precede actual economic activity, signaling future output and employment.

  7. The 'output gap' is defined as:

    Answer: The difference between actual GDP and potential GDP

    The output gap measures how far actual GDP is from its potential (full-employment) level, indicating whether the economy is over- or underperforming.