CBE Business Cycles and Economic Indicators 3

Question 1

According to Real Business Cycle (RBC) theory, economic fluctuations are primarily caused by:

Accepted Answer

Technology shocks and other real (supply-side) factors

Answer

Changes in government fiscal policy and taxation

Answer

Monetary shocks and unexpected changes in the money supply

Answer

Irrational expectations and speculative bubbles

Question 2

The 'accelerator principle' in business cycle theory states that:

Accepted Answer

Investment spending changes are proportional to the rate of change in output (not its level)

Answer

Economic recoveries accelerate proportionally as unemployment falls

Answer

Inflation accelerates automatically during economic expansions

Answer

Monetary policy has an accelerating multiplier effect on GDP growth

Question 3

During which phase of the business cycle would a business economist most likely recommend expansionary countercyclical fiscal policy such as increased government spending?

Accepted Answer

Trough/Recession — when output and employment are falling

Answer

Peak — when the economy is at maximum output

Answer

Expansion — when GDP is growing steadily

Answer

Supply-shock recovery — when commodity prices surge

Question 4

The Kondratiev wave (K-wave) is a long economic cycle with an approximate duration of:

Accepted Answer

45–60 years

Answer

3–5 years

Answer

7–11 years

Answer

15–25 years

Question 5

To assess the severity of a recession, a business economist would most appropriately measure:

Accepted Answer

The peak-to-trough decline in real GDP combined with the duration of the downturn

Answer

The change in nominal GDP from the previous year only

Answer

The percentage drop in equity market indices from their peak

Answer

The change in the federal budget deficit over the recessionary period

Question 6

The short-term inventory cycle contributes to business cycle fluctuations primarily through:

Accepted Answer

The production-sales time lag causing firms to over- or undershoot optimal inventory levels

Answer

Shifts in consumer preferences that permanently alter demand patterns

Answer

Government fiscal adjustments responding to inventory imbalances

Answer

Central bank interest rate decisions that incentivize inventory investment

Question 7

When an economy experiences 'stagflation,' which combination of economic conditions is present?

Accepted Answer

Stagnant or declining economic growth combined with high inflation and elevated unemployment

Answer

High economic growth combined with high inflation

Answer

Low unemployment and persistently rising consumer prices

Answer

Rapid economic expansion accompanied by falling price levels (deflation)