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.
What will be an ideal response?
The business cycle is defined as a fluctuation of aggregate economic activity. There are recurrent but not periodic movements of aggregate activity, with many variables moving in the same direction at the same time (comovement). Increases in aggregate economic activity are expansions, while reductions in aggregate economic activity are contractions, or recessions. Both expansions and contractions exhibit persistence, so once an expansion or contraction begins, it tends to last some time.
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The classic loser from an unanticipated inflation is
A) the borrower who pays less nominal interest than expected. B) the borrower who pays more nominal interest than expected. C) the saver who earns less real interest than expected. D) the saver who earns more real interest than expected, and so should have saved more.
Why does perfect competition shun advertising? Does advertising benefit a monopoly?
What will be an ideal response?
Most people buy insurance because they
a. are risk lovers b. enjoy the gamble c. are risk neutral d. want to avoid gambles
Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a romantic date. This offer will likely: a. not affect the opportunity cost of going on the date
b. reduce the opportunity cost of going on the date because giving up the additional work dollars will make his girlfriend feel even more appreciated. c. increase the opportunity cost of going on the date. d. reduce the opportunity cost of working.