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Chapter 9: Q1. (page 194)

Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.

Short Answer

Expert verified

Peak > Expansion > Recession > Trough

Step by step solution

01

Defining the phases of the business cycle with respect to the level of GDP

Recession:In this phase, economic activity slows down, and the output and GDP start declining.

Trough:It is the lowest point of economic activities where the economy's GDP falls to its lowest point.

Peak:It is the point where the economy booms and the economic activities are at their best.

Expansion: It is an after-trough phase where an economy starts recovering from recession and the GDP begins to increase.

02

Decreasing order of GDP among the different phases

The GDP decreases in the following order:

  • The GDP is highest when the economy is at a peak.

  • The GDP is second-highest in the expansion phase as this is the growing period where the economy tries to reach its peak.

  • The recession comes third in the order because, during a recession, the GDP starts declining and becomes very low.

  • The trough is the point where the economy reaches after passing through the recession, and the GDP is at its lowest.

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Most popular questions from this chapter

What are the four phases of the business cycle? How long do business cycles last? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer nondurables?

Suppose that the nominal inflation rate is 4 percent and the inflation premium is 2 percent. What is the real interest rate? Alternatively, assume that the real interest rate is 1 percent and the nominal interest rate is 6 percent. What is the inflation premium?

If your nominal income rises by 5.3 percent and the price level rises by 3.8 percent in some year, by what percentage will your real income (approximately) increase? If your nominal income rises by 2.8 percent and your real income rises by 1.1 percent in some years, what is the (approximate) inflation rate?

The unemployment rate that is consistent with full employment is __________________.

  1. the natural rate of unemployment

  2. the unnatural rate of unemployment

  3. the status quo rate of unemployment

  4. cyclical unemployment

  5. Okun鈥檚 rate of unemployment

Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent, and she is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank?

  1. 4 percent

  2. 5 percent

  3. 6 percent

  4. 7 percent
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