Macroeconomics, 9e (Abel/Bernanke/Croushore)
Chapter 8 Business Cycles
8.1 What Is a Business Cycle?
1) One of the first organizations to investigate the business cycle was
A) the Federal Reserve System.
B) the National Bureau of Economic Research.
C) the Council of Economic Advisors.
D) the Brookings Institution.
2) The entire sequence of a decline in aggregate economic activity followed by recovery,
measured from peak to peak or trough to trough is a
A) long-run trend.
B) potential output path.
C) business cycle.
D) recurrent comovement.
3) A detailed history of business cycles is known as a
A) historical decomposition.
B) trend analysis.
C) Hodrick—Prescott filter.
D) business cycle chronology.
4) The dates of turning points are determined by a committee from the
A) FBI.
B) BLS.
C) BEA.
D) NBER.
5) Business cycles all display the following characteristics except
A) a period of expansion followed by one of contraction.
B) comovement of many economic variables.
C) rising prices during an expansion and falling prices during the contraction.
D) they last a period of one to twelve years.
6) The trough of a business cycle occurs when ________ hits its lowest point.
A) inflation
B) the money supply
C) aggregate economic activity
D) the unemployment rate
7) The low point in the business cycle is referred to as the
A) expansion.
B) boom.
C) trough.
D) peak.
8) When aggregate economic activity is increasing, the economy is said to be in
A) an expansion.
B) a contraction.
C) a peak.
D) a turning point.
9) The high point in the business cycle is referred to as the
A) turning point.
B) peak.
C) boom.
D) trough.
10) When aggregate economic activity is declining, the economy is said to be in
A) a contraction.
B) an expansion.
C) a trough.
D) a turning point.
11) Peaks and troughs of the business cycle are known collectively as
A) volatility.
B) turning points.
C) equilibrium points.
D) real business cycle events.
12) Turning points in business cycles occur when
A) a new business cycle is initiated at the trough.
B) the economy hits the peak or trough in the business cycle.
C) the business cycle begins to follow a new pattern that differs from previous business cycles.
D) a new business cycle is initiated at the peak.
13) Who officially determines whether the economy is in a recession or expansion?
A) The president of the United States
B) The U.S. Congress
C) The Federal Reserve Board of Governors
D) The National Bureau of Economic Research
14) Which group within the National Bureau of Economic Research officially determines
whether the economy is in a recession or expansion?
A) The G-4
B) The Business Cycle Dating Committee
C) The Business Cycle Governors
D) The Turning Point Group
15) Research on the effects of recessions on the real level of GDP shows that
A) recessions cause only temporary reductions in real GDP, which are offset by growth during
the expansion phase.
B) recessions cause large, permanent reductions in the real level of GDP.
C) recessions cause both temporary and permanent declines in real GDP, but most of the decline
is temporary.
D) recessions cause both temporary and permanent declines in real GDP, but most of the decline
is permanent.
16) The tendency of many different economic variables to have regular and predictable patterns
over the business cycle is called
A) persistence.
B) comovement.
C) periodicity.
D) recurrence.
17) Comovement is
A) the tendency for declines in economic activity to be followed by further declines, and for
growth in economic activity to be followed by more growth.
B) the idea that the standard pattern of contraction—trough—expansion—peak occurs again and
again in industrial economies.
C) the tendency of many economic variables to move together in a predictable way over the
business cycle.
D) the idea that peaks and troughs of the business cycle occur at regular intervals.
18) The tendency of many economic variables to move together in a predictable way over the
business cycle is called
A) recurrence.
B) persistence.
C) comovement.
D) inflation.
19) The fact that business cycles are recurrent but not periodic means that
A) business cycles occur at predictable intervals, but do not last a predetermined length of time.
B) the business cycle’s standard contraction—trough—expansion—peak pattern has been
observed to occur over and over again, but not at predictable intervals.
C) business cycles occur at predictable intervals, but do not all follow a standard contraction—
trough—expansion—peak pattern.
D) business cycles last a predetermined length of time, but do not all follow a standard
contraction—trough—expansion—peak pattern.
20) The tendency for declines in economic activity to be followed by further declines, and for
growth in economic activity to be followed by more growth is called
A) persistence.
B) comovement.
C) periodicity.
D) recurrence.
21) Persistence is
A) the tendency for declines in economic activity to be followed by further declines, and for
growth in economic activity to be followed by more growth.
B) the idea that the standard pattern of contraction—trough—expansion—peak occurs again and
again in industrial economies.
C) the tendency of many economic variables to move together in a predictable way over the
business cycle.
D) the idea that peaks and troughs of the business cycle occur at regular intervals.
22) The idea that the business cycle is recurrent means that
A) declines in economic activity tend to be followed by further declines, and growth in economic
activity tends to be followed by more growth.
B) the standard pattern of contraction—trough—expansion—peak occurs again and again in
industrial economies.
C) many economic variables to move together in a predictable way over the business cycle.
D) peaks and troughs of the business cycle occur at regular intervals.
23) Define the following characteristics of business cycles: recurrence and persistence.
24) Describe the major features of the business cycle. Be sure to discuss what variables are
affected by the cycle, a description of the key features that are apparent in the data, how
variables are related to one another, how regular the cycle is, and how predictable the cycle is.
25) When a recession occurs, do economists expect it to be a temporary phenomenon? Or is
there some degree of permanence? What is the empirical evidence?
8.2 The American Business Cycle: The Historical Record
1) The longest contraction in American history occurred
A) during the 1870s.
B) in the years right before World War I began.
C) during the 1930s.
D) during the 1970s.
2) In the Great Depression, the financial sector collapsed, as
A) banks engaged in ruinous competition.
B) the stock market boomed, so people withdrew most of their funds from banks and invested
heavily in stocks.
C) the bond market boomed, so people withdrew most of their funds from banks and invested
heavily in bonds.
D) many banks closed.
3) The deep recession of 1973-1975 was mainly caused by
A) flawed technology that caused a drop in TFP.
B) an unexplained drop in business optimism.
C) slower money growth.
D) higher oil prices.
4) The long boom occurred in the
A) 1920s and 1930s.
B) 1940s and 1950s.
C) 1960s and 1970s.
D) 1980s and 1990s.
5) The long boom ended in
A) 1999.
B) 2001.
C) 2008.
D) 2012.
6) The Great Depression consisted of how many business cycles?
A) 1
B) 2
C) 3
D) 4
7) By 1937, when a new recession began in the midst of the Great Depression,
A) GDP had almost recovered to its 1929 level, but unemployment was still above the 1929
level.
B) unemployment had almost fallen back to its 1929 level, but GDP had yet to recover to its
1929 level.
C) neither GDP nor unemployment had returned to near their 1929 levels.
D) both GDP and unemployment had returned to near their 1929 levels.
8) The worst recessions after World War II occurred
A) during 1945-1946 and 1973-1975.
B) during 1957-1958 and 1973-1975.
C) during 1973-1975 and 1981-1982.
D) during 1945-1946 and 1981-1982.
9) The 1973-1975 recession was caused by
A) the Fed’s easy monetary policy.
B) the Fed’s tight monetary policy.
C) business pessimism about investment caused by high tax rates on capital.
D) the quadrupling of oil prices by OPEC.
10) The longest economic expansion in the United States occurred during the
A) 1940s.
B) 1960s.
C) 1980s.
D) 1990s.
11) The Great Recession began in ________ and ended in ________.
A) December 2007; June 2009
B) December 2007; December 2011
C) October 2008; June 2009
D) October 2008; December 2011
12) Christina Romer’s criticism of the belief that business cycles had moderated since World
War II depended on the fact that
A) estimates of the timing of business cycles since World War II had been inaccurate.
B) misuse of historical data had caused economists to understate the size of cyclical fluctuations
in the post-World War II era.
C) economists had ignored the roles of the government and international trade in mitigating
economic fluctuations prior to World War II.
D) economists had left out important components of GDP, such as wholesale and retail
distribution, transportation, and services, in their pre-World War II estimates.
13) Christina Romer argued that
A) measured properly, GNP before 1929 varied substantially less over time than the official
statistics showed.
B) measured properly, GNP after 1929 varied substantially more over time than the official
statistics showed.
C) measured properly, economic expansions after 1929 were shorter than the official statistics
showed.
D) measured properly, economic expansions before 1929 were shorter than the official statistics
showed.
14) Christina Romer’s estimates of the business cycles prior to World War II showed that the
business cycle
A) had greater fluctuations before World War II than previous estimates had shown.
B) had smaller fluctuations before World War II than previously estimated.
C) had smaller fluctuations before World War II than after World War II.
D) had larger fluctuations after World War II than had been previously measured.
15) The NBER’s Business Cycle Dating Committee picks recession dates by looking at many
variables, the four most important of which are industrial production, manufacturing and trade
sales, nonfarm employment, and real personal income. These variables are known as
A) leading indicators.
B) coincident indicators.
C) lagging indicators.
D) recession indicators.
16) The recession of 2001 began in ________ and ended in ________.
A) March; November
B) February; December
C) April; October
D) February; October
17) According to research by Stock and Watson, the recent decline in volatility in many
macroeconomic variables was a
A) sudden drop that occurred around 1984.
B) gradual decline throughout the 1980s.
C) sudden drop that occurred around 1990.
D) gradual decline throughout the 1990s.
18) Stock and Watson found that monetary policy was responsible for about ________% of the
reduction in output volatility that occurred in the mid-1980s.
A) 0 to 10
B) 10 to 20
C) 20 to 30
D) 30 to 40
19) Stock and Watson found that ________ was responsible for about 20—30 % of the reduction
in output volatility that occurred in the mid-1980s.
A) reduced shocks to productivity
B) reduced shocks to food and commodity prices
C) better monetary policy
D) better inventory control
20) The widespread decline in the volatility of many macroeconomic variables after 1984 led
economists to term this period the
A) Great Moderation.
B) Low Volatility Era.
C) Steady State.
D) Long Boom.
21) How has the severity and duration of business cycles changed over time in the United States?
22) If you were a member of the NBER business-cycle dating committee, would you declare that
the U.S. economy is now in a recession? Why? Describe the major variables that you would look
at to determine whether the economy is in a recession or not, and what features of the data you
would look for.
23) Use the NBER data in Table 8.1 in the textbook on U.S. business cycle turning points to
calculate: a) the shortest business cycle from peak to peak; b) the shortest business cycle from
trough to trough; c) the longest business cycle from peak to peak; and d) the longest business
cycle from trough to trough.
8.3 Business Cycle Facts
1) An economic variable that moves in the same direction as aggregate economic activity (up in
expansions, down in contractions) is called
A) procyclical.
B) countercyclical.
C) acyclical.
D) a leading variable.
2) An economic variable that moves in the opposite direction as aggregate economic activity
(down in expansions, up in contractions) is called
A) procyclical.
B) countercyclical.
C) acyclical.
D) a leading variable.
3) An economic variable that doesn’t move in a consistent pattern with aggregate economic
activity is called
A) procyclical.
B) countercyclical.
C) acyclical.
D) a leading variable.
4) A variable that tends to move in advance of aggregate economic activity is called
A) a leading variable.
B) a coincident variable.
C) a lagging variable.
D) an acyclical variable.
5) A variable that tends to move at the same time as aggregate economic activity is called
A) a leading variable.
B) a coincident variable.
C) a lagging variable.
D) an acyclical variable.