Introduction to Macroeconomics

7. Business Cycles - Sample Problems

Contents

1. Business Cycles

1. Business Cycles

1. Economists use the term "business cycle" to refer to:
   1. fluctuations in real GDP growth over time.
   2. the growth of small businesses into major corporations and then their eventual decline.
   3. the amount of time businesses take to recover their fixed costs.
   4. changes in the unemployment rate caused by the hiring and firing of employees.
   5. fluctuations in firms' stock prices over time.

   Answer: A. Answer B is similar to the Business School concept of product life cycles, but not to economic business cycles. Changes in the unemployment rate, answer D, may appeal to you but the business cycle refers to the physical output of the economy (real GDP). During an economic recovery phase where real GDP is growing it is quite possible for the unemployment rate to increase through changes in frictional and structural unemployment.

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