Question 1 Chapter 20 Version 2 Key facts about economic fluctuations Solution
The following graph approximates business cycles in the United States from
... [Show More] the first quarter of 1953 to the
third quarter of 1957. 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. A period of
declining real GDP, such as the blue-shaded period in 1953, is known as .
Points: 1 / 1
True or False: Short-term fluctuations in real GDP are irregular and unpredictable. REAL GDP (BiIIions of doIIars)
Explanation: Close Explanation
A recession is a period of declining real GDP. The technical definition of recession is "a period of falling
real GDP that lasts 6 months or more." 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: 0 / 1
Which of the following probably occurred as the U.S. economy experienced increasing real GDP in
1954? Check all that apply.
The unemployment rate declined.
Retail sales increased.
Consumer spending increased.
Industrial production 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]