Senior Secondary (HKDSE) · Economics

Business cycles: a description of the short run fluctuations in real GDP around the long run trend: Practice Questions

5 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Business cycles: a description of the short run fluctuations in real GDP around the long run trend.

9 questions26 marksFree, no account

Question 1

1 mark

In the context of business cycles, what does the long-run trend of real Gross Domestic Product (GDP) primarily represent?

Question 2

1 mark

During the recession phase of a business cycle, which of the following is most likely to be observed in the economy?

Question 3

1 mark

An economy has entered the early stages of a recovery following a severe recession, with real GDP showing an initial rebound. However, economists observe several conflicting signals. Which of the following observations would be the most significant indicator that the recovery remains precarious and could easily falter?

Question 4

1 mark

An economy is currently in the recession phase of its business cycle, but its level of real GDP remains above the long-run trend. Which of the following statements is correct?

Question 5

1 mark

Which of the following best describes the relationship between the short-run fluctuations and the long-run trend of real GDP?

Question 6

2 marks

State the four phases of a business cycle that represent the short-run fluctuations in real GDP around the long-run trend.

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Question 7

5 marks

Explain why policymakers face a significant challenge in accurately identifying whether a short-term deceleration in real GDP growth represents merely a temporary lull or the onset of a recession within the context of business cycle fluctuations.

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Question 8

5 marks

An economy's real GDP consistently exceeds its long-run trend with a historically low unemployment rate, yet inflation remains unexpectedly stable below target. Identify this business cycle phase, explain the incongruity of low inflation, and outline a long-term risk if this trend persists.

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Question 9

9 marks

An economy is currently experiencing a situation where its actual real Gross Domestic Product (GDP) is significantly below its potential output, with a continuous decline in production for two consecutive quarters. This period is also characterized by rising unemployment rates and a noticeable slowdown in the rate of increase of the general price level.

a) Identify and describe the specific phase of the business cycle this economy is experiencing. Explain three key characteristics of this phase, referring to the information provided.

b) Explain the typical impact of this business cycle phase on business investment and the general price level in the economy. How does this phase differ from an economic boom?

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