DP1 Business Cycle and Circular Flow

1. What does the business cycle in economics refer to?

• Fluctuations in stock prices
• Fluctuations in economic activity
• Changes in government policy
• Variations in unemployment rates

2. Which phase of the business cycle is characterized by rising GDP and employment?

• Peak
• Expansion
• Contraction
• Trough

3. What signifies the peak of the business cycle?

• Lowest unemployment rates
• Highest level of economic activity
• Start of economic decline
• Decrease in consumer spending

4. A recession is officially declared when there are two consecutive quarters of:

• Positive GDP growth
• Negative GDP growth
• Stable inflation rates
• Increased consumer spending

5. What is the trough phase in the business cycle?

• The peak of economic activity
• The start of a recession
• The end of economic expansion
• The lowest point of economic activity

6. What can cause fluctuations in the business cycle?

• Only government policies
• Only consumer confidence
• Only external shocks
• A combination of factors

7. In the circular flow of income, households provide:

• Goods and services
• Labor and resources
• Taxes
• Loans

8. Businesses in the circular flow of income model:

• Save money
• Pay taxes
• Produce goods and services
• Import goods

9. What are leakages in the circular flow of income?

• Money entering the circular flow
• Money flowing within the circular flow
• Money exiting the circular flow
• Money saved within businesses

10. Which of the following is a leakage in the circular flow model?

• Investment
• Government spending
• Savings
• Exports