Macro

Running head: FINAL EXAM

Final Exam

Macroeconomics

Final Exam

Question #1

The business cycle is the periodic but irregular up and down movements in economic activities and trends. The economy is not in constant growth unfortunately, that is why economists have developed the different phases of the business cycle. There are four phases in the business cycle, the phases are: peak, recession, trough, and expansion. During the peak phase, business activity is said to have reached a temporary maximum (McConnell, Brue, & Flynn, 2009, p. 521). This means that the economy is close to or at full employment, and the real output of the economy is nearly at its operating capacity. During the peak phase of the business cycle prices for products and services usually increase (McConnell, Brue, & Flynn, 2009, p. 521). The recession phase occurs when there is a period of decline in total output, income, and employment. This is a period that generally last six plus months, there is a reduction in business activity and an increase in the unemployment rate which causes a significant decline in the real or adjusted gross domestic product (McConnell, Brue, & Flynn, 2009, p. 521).

The third phase of the business cycle is known as the trough phase, this phase is also referred to as the trough of the recession or depression period. It is a very devastating period for most of society. During this period output and employment levels are at their absolute lowest point (McConnell, Brue, & Flynn, 2009, p. 521). This phase may be a very short period of time, but it may also linger on for a very long period of time depending on government structures and programs, business outputs and objectives, and banks ability or willingness to loan their money. Finally the expansion phase, this phase is welcomed by most in society because it is a sign of economic recovery. Incomes and real gross domestic product numbers increase during this period, production capacity and prices...