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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

Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is more likely to be associated with a negative GDP gap? Which is more likely to be associated with a positive GDP gap, in which actual GDP exceeds potential GDP? What is core inflation? Why is it calculated?

Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this country鈥檚 unemployment rate?

  1. 10 per cent

  2. 15 per cent

  3. 20 per cent

  4. 25 per cent

A country鈥檚 current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy鈥檚 negative GDP gap?

  1. 1 percent

  2. 3 percent

  3. 6 percent

  4. 10 percent

True or False. Lenders are helped by unanticipated inflation.

Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in the labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the official unemployment rate?
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