Question 1 Chapter 20 Key facts about economic fluctuations Solution
The following graph approximates business cycles in the United States from the first
... [Show More] quarter of 1947 to the
third quarter of 1951. The vertical blue bar coincides with periods of 6 or more months of declining real gross
domestic product (real GDP).
Source: “Currentdollar and Real GDP,” Bureau of Economics Analysis, last modified May 1, 13,
accessed May 15, 13, http://www.bea.gov/national/xls/gdplev.xls.
Notice that real GDP trends upward over time but experiences ups and downs in the short run. These shortrun fluctuations in real GDP are often referred to as .
Points: 1 / 1
True or False: Small ups and downs in real GDP follow a consistent, predictable pattern. REAL GDP (BiIIions of doIIars)
Explanation: Close Explanation
Economic fluctuations correspond closely to business conditions: Most businesses do well during
periods of expansion, and most businesses do poorly during periods of falling real GDP. The short-term
fluctuations in real GDP are irregular and unpredictable. Recessions may occur close together or farther
apart. The duration of recessions varies, and output tends to rise and fall at different rates over time.
The ups and downs in real GDP are known as the business cycle, but this term is somewhat misleading
because economic fluctuations do not follow a regular cycle.
True
False
Points: 1 / 1
Which of the following probably occurred as the U.S. economy experienced declining real GDP in
1948? Check all that apply.
Total real income declined.
Consumer spending increased.
Car sales increased.
Corporate profits declined.
Points: 1 / 1
Explanation: Close Explanation
Most macroeconomic quantities fluctuate together. Recall that real GDP measures the economy's total
output and total income simultaneously. A decrease in real GDP, therefore, coincides with declining
total income, declining personal income, and falling corporate profits. As incomes decline during a
recession, so, too, does consumer spending on retail goods and services and on durable goods, such as
automobiles. Households also contribute to declining investment expenditures by purchasing fewer
new homes. As households spend less on products, firms cut back on industrial production and curb
investment expenditures on physical capital.
The unemployment rate tends to rise during periods of falling real GDP as firms cut back on production
and lay off workers. The unemployment rate tends to fall during economic expansions as firms expand [Show Less]