Understanding the Business Cycle

What is the first phase of the business cycle where the economy begins to grow?

• Peak

• Expansion

• Contraction

• Trough

During which phase of the business cycle do businesses typically hire more people?

• Trough

• Contraction

• Expansion

• Peak

What happens to unemployment during the contraction phase of the business cycle?

• It decreases

• It remains constant

• It increases

• It becomes zero

Which phase of the business cycle is characterized by the economy reaching its lowest point?

• Peak

• Expansion

• Trough

• Contraction

The role of the Federal Reserve in managing the business cycle is (a)  

• Changing taxes
• Implementing fiscal policy
• Changing interest rates
• Increasing government spending

Which of the following is NOT a phase of the business cycle?

• Expansion

• Inflation

• Peak

• Trough

Match the following phases with their typical price behavior during the contraction phase.

• During economic peak

• Prices become unpredictable

• During economic expansion

• Prices remain stable

• During economic uncertainty

• Prices rise

• During economic contraction

• Prices fall

(a)   involves changing taxes and government spending to influence the economy.

• Monetary policy
• Fiscal policy
• Trade policy
• Regulatory policy

What is the term for the highest point of economic growth in the business cycle?

• A period of decreasing economic activity

• Trough

• The highest point of economic growth

• Expansion

• A period of increasing economic activity

• Contraction

• The lowest point in the business cycle

• Peak

How does the length of each phase of the business cycle vary?

• It is always the same

• It depends on government intervention

• It can vary, sometimes lasting longer or shorter

• It is determined by the Federal Reserve