Question

1. Key facts about economic fluctuations

The following graph approximates business cycles in the United States from the first quarter of 1955 to the third quarter of 1959. The vertical blue bar coincides with periods of 6 or more months of declining real gross domestic product (real GDP).

2800 ? 2700 2600 Y 2500 2400 1955 1956 1957 1958 1959 YEAR

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 1957, is known as ( a recession / a business cycle / an expansion ).

True or False: Small ups and downs in real GDP follow a consistent, predictable pattern.

__True

__False

Which of the following probably occurred as the U.S. economy experienced declining real GDP in 1957? Check all that apply.

__The unemployment rate increased.

__Industrial production increased.

__Home sales increased.

__Consumer spending declined.

Answer 1

When the real GDP experiences downs in the short run, such as the one shown as blue- shaded period, it is known as a recession Small ups and down in real GDP are never predictable or consistent. Since business cycles are irregular in practical, they show unpredictable trends. Therefore, the given statement is false Since the U.S. economy has experienced a decline in real GDP in 1957, the probable reasons could have been The unemployment rate increased (increased unemployment means less output, and thus, less GDP) Consumer spending declined (since the spending of one is income of another, i:f consumer spending declines, real GDP declines) etail sales declined (if it is given in the options)