econ 104 exam 2 review questions

econ 104 exam 2 review questions - Econ 104 Professor...

This preview shows page 1 - 2 out of 8 pages.

Econ 104 Professor Adrienne Kearney Spring 2013 Review Questions Second Exam Chapter 10 (beginning with page 320): Packet pages 1-39 (Lectures 2/7-2/19) 1. What is a business cycle? What are the four phases of a business cycle? business cycle: alternating periods of economic growth and contraction (alternating periods of economic expansion and recession) 4 Phases: recession: aggregate economic activity is falling - production, income, employment rate declining - real GDP growth < 0 trough: end of recession and expansion begins expansion: aggregate economic activity is rising - production, income, employment are rising - real GDP growth > 0 peak: end of expansion and beginning of recession 2. What are the characteristics of a recession? An expansion/recovery? When was the last recession in the U.S.? characteristics of recession: - real GDP decreases - consumption (C) decreases NI decreases - investments (I) decreases profits decreases - unemployment (U) increases - retail sales decreases - production decreases characteristics of an expansion/recovery? - real GDP rises - consumption (C) increases NI increases - investments (I) increases profits increases - unemployment (U) decreases - retail sales increases - production increases Last recession in the U.S.: December 2007 – June 2009; 10% unemployment; length = 18 months; % change real GDP: -8.9% 3. What are the challenges confronting forecasters, businesses and policymakers with respect to the business cycle? What do we mean by “economic indicators”? Why do we look at the other economic indicators besides real GDP?
Image of page 1

Subscribe to view the full document.

Challenges Confronting Policymakers/Businesses/Forecasters 1. Length of recession/expansion varies 2. Recession: severity of decrease real GDP and increase U also varies 3. GDP release comes out quarterly – after the end of the quarter – end of the 1 st month after quarter e.g. 4 th quarter real GDP was released end of January * policymakers need to anticipate recession before it occurs – so they can jump in and decrease interest rates, etc. Business Cycle Economic Indicators: used to forecast real GDP - leading - coincident - lagging 4. What do we mean by leading, coincident, lagging indicators? What are some examples of each? leading : peaks and troughs before real GDP peaks and troughs - examples: - average labor productivity (monthly) - average weekly hours (monthly) - new orders (monthly) - new building permits (monthly) - stock prices (reflect the long-term profitability of firms) (daily) - indicator: index of consumer confidence lagging : monthly economic variables (unemployment, inventories, and inflation) that peak and trough after real GDP peaks and troughs - examples: - unemployment rate: monthly, counter cyclical - inventories – to – sales ratio; inventories: increase during recession because sales decrease and vice versa - inflation: growth in price level – builds up during expansion - indicator: inflation and unemployment coincident : economic variables that peak and trough at the same time as real GDP - examples: - employment: “employment situations report”, indicates: the number of new jobs
Image of page 2
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern