Explain the relationship between real GDP and potential GDP during the two phases of the business cycle
What will be an ideal response?
During an expansion the level of real GDP eventually surpasses potential GDP, reaches a peak and subsequently falls below potential GDP during a recession eventually reaching a trough.
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In the long run, perfectly competitive firms cannot earn an economic profit
Indicate whether the statement is true or false
Which one of the following would cause a rightward shift in the demand curve of digital cameras?
A) Digital cameras become easier to use. B) The price of digital cameras decreases. C) Production methods are modified to make production of digital cameras more efficient. D) Government regulations are imposed to limit the number of digital cameras imported.
Assume the economy is operating below full employment. Which of the following policy actions will allow aggregate spending to increase but will not increase the size of the government in the process?
A. Increase government spending and leave tax rates unchanged. B. Decrease government spending by more than an increase in taxes. C. Decrease tax rates and leave government spending unchanged. D. Increase government spending and taxes by the same amount.
Business cycles are:
A. movements in stock prices. B. the transfer of executives between firms. C. used to describe fluctuations in GDP. D. a description of the time required to bring a new product to market.