1.The impact of hurricanes on the level of business activity in North Carolina i
ID: 1191452 • Letter: 1
Question
1.The impact of hurricanes on the level of business activity in North Carolina is an example of
a.seasonal variation
b.internal force
c.cyclical fluctuation
d.random fluctuation
2.The impact of the 2005 hurricanes in Florida would be an example of a random fluctuation in business activity.
True or False
3. Psychological forces have no effect on business fluctuations.
True or False
4.A recession occurs whenever there’s a decline in real GDP for two or more successive quarters.
True or False
5.In an expanding economy,
a.prices rise faster than costs
b.costs rise faster than prices
c.profit margins decrease
d.interest rates fall
6.The underinvestment theory is classified as a monetary cause of the business cycle.
True or False
7.During a contraction in the business cycle, the multiplier effect leads to cumulative declines in output, employment, and income.
True or False
8.The psychological theory of the business cycle is
a.incorporated into practically all other theories of the cycle
b.held in disrepute by most economists
c.a complete explanation of the cycle
d.used only by monetary theorists
9.During the expansion phase of the business cycle, profit margins increase due to a widening cost-price relationship.
True or False
10.Since the Great Depression, business cycles have not been an issue in the United States.
True or False
Explanation / Answer
(1) (d)
Effect of natural disaster on business activity is due to random variation.
(2) True.
Natural disasters cannot have any pattern that can be identified with a business cycle.
(3) False
Consumer confidence boosts the economy and increases GDP but a loss of consumer confidence can pull an economy to recession.
(4) True. This is the generalized definition of a recession.
(5) (a)
In expanding economy, aggregate demand rises faster than aggregate supply which causes an increase in price, which rises faster than the wage level.
(6) False.
Underinvestment theory is a fiscal imbalance, not a monetary one.
(7) True
In an expanding economy, multiplier increases output by a multiple of change in any component of demand. For example, during expansion, a multiplier may be 10 which means that if consumption increases by $1, total GDP increases by $10. In a recessionary economy, consumption decreases, therefore lowering GDP and output.
(8) (a)
(9) True.
During expansion (growth) stage, higher demand leads to higher prices and profit margin increases.
(10) False.
The subprime crisis of 2007-08 itself is an example how business cycle can push the economy into recession.
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