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Business Cycles and Their Characteristics quiz

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  • What are the two main phases of the business cycle called?
    The two main phases are expansions and contractions.
  • What happens to production, income, and employment during an expansion?
    During an expansion, production, income, and employment all increase.
  • What is a peak in the business cycle?
    A peak is the highest point in the business cycle before a contraction begins.
  • What is a trough in the business cycle?
    A trough is the lowest point in the business cycle before an expansion starts.
  • What typically happens to unemployment during a recession?
    Unemployment increases during a recession.
  • How does inflation behave during a recession?
    Inflation decreases during a recession because spending drops and price levels fall.
  • What is the relationship between unemployment and inflation in the business cycle?
    Unemployment and inflation tend to move in opposite directions during the business cycle.
  • What causes the business cycle to fluctuate instead of growing smoothly?
    Shocks such as irregular innovation, productivity changes, monetary policy, political events, and financial instability cause fluctuations.
  • How do irregular innovations affect the business cycle?
    Irregular innovations can cause sudden expansions in the economy, followed by slower growth as the innovation is absorbed.
  • What is a jobless recovery?
    A jobless recovery is when economic growth resumes but unemployment remains high.
  • How can changes in productivity lead to business cycle fluctuations?
    Changes in productivity, often due to technology or resource availability, can cause unexpected booms or busts.
  • What role does monetary policy play in the business cycle?
    Monetary policy, such as actions by the Federal Reserve, can create shocks that affect the business cycle.
  • How can political events impact the business cycle?
    Unexpected political events like wars or terrorism can cause booms or busts in the economy.
  • What is financial instability and how does it affect the business cycle?
    Financial instability, such as market bubbles bursting, can lead to recessions and contractions in the business cycle.
  • What happens to inflation during an expansion?
    Inflation increases during an expansion as wages and spending rise.