AP Macro business cycle and output gaps key terms
This study set covers key terms related to the business cycle and output gaps, essential for AP Macroeconomics exam preparation.
Quiz(24 questions)
1. Which of the following is NOT one of the four phases of the business cycle?
Terms in this Study Set(24)
Business Cycle Terms(12)
What are the four phases of the business cycle?
1. Expansion 2. Peak 3. Contraction 4. Trough
True or False: A peak indicates the lowest point in the business cycle.
False: A peak is the highest point before a downturn.
Fill in the blank: The __________ is when the economy is growing.
Expansion
What happens during a contraction?
Decrease in GDP, rising unemployment, reduced consumer spending.
Compare peak and trough.
Peak: highest economic activity. Trough: lowest economic activity.
Which phase follows a trough?
Expansion: Recovery begins, leading to increased economic activity.
What is a recession?
A period of at least two consecutive quarters of negative GDP growth.
What typically causes a peak?
Strong consumer demand, high business investment, and low unemployment.
True or False: Economic indicators are irrelevant to the business cycle.
False: Economic indicators help predict and describe business cycle phases.
What indicates a trough?
Lowest GDP, high unemployment, potential for recovery.
Cause → Effect: What can high inflation during expansion lead to?
Higher interest rates, reduced consumer spending, potential recession.
What is GDP?
Gross Domestic Product: Total value of all goods and services produced in a country.
Output Gaps(12)
What is an output gap?
The difference between actual output and potential output. Positive output gap: economy exceeds potential. Negative output gap: economy below potential.
True or False: A negative output gap indicates an overheating economy.
False. A negative output gap indicates underutilization of resources and lower-than-potential economic output.
Causes of a positive output gap?
- Increased consumer spending - Business investment - Government spending boosts - Export growth
What happens during a negative output gap?
Higher unemployment rates and lower inflation. Businesses operate below capacity, leading to decreased income and reduced spending.
Fill in the blank: The _____ gap measures how much actual output differs from potential output.
output
How do output gaps affect inflation?
Positive output gap can lead to inflationary pressures as demand exceeds supply. Negative output gap tends to lower inflation or cause deflation.
What is potential output?
The maximum sustainable output an economy can produce without causing inflation. Factors include labor, capital, and technology.
Example of an output gap:
If the economy's potential output is 18 trillion, there is a negative output gap of $2 trillion.
True or False: Output gaps are only temporary phenomena.
True. Output gaps often close over time as economies adjust to changes in demand and supply.
What are the implications of a sustained negative output gap?
- Long-term unemployment - Decreased business investment - Potential for economic stagnation
Comparison: Actual output vs. Potential output.
Actual output: what the economy is currently producing. Potential output: what the economy could produce at full capacity.
What does the output gap indicate about economic health?
It serves as a signal for policymakers; negative gaps indicate need for stimulus, while positive gaps suggest inflation control is necessary.
Questions in this Study Set(24)
1. Which of the following is NOT one of the four phases of the business cycle?
2. What is the term for the difference between actual output and potential output?
3. During which phase of the business cycle does economic activity reach its highest point?
4. Which situation best describes a negative output gap?
5. Fill in the blank: A __________ is a significant decline in economic activity across the economy lasting more than a few months.
6. True or False: A positive output gap suggests the economy is producing less than its potential.
7. Which phase of the business cycle typically follows a peak?
8. Which of the following is a cause of a positive output gap?
9. What is typically a sign of economic recovery?
10. Fill in the blank: A sustained negative output gap can lead to _____ in the long term.
11. True or False: A trough represents the peak of economic activity.
12. What effect does a positive output gap generally have on inflation?
13. Which of the following leads to a peak in the business cycle?
14. Which of the following is NOT a characteristic of potential output?
15. Which of the following is NOT typically associated with the contraction phase?
16. What happens to businesses during a negative output gap?
17. What happens at the trough of the business cycle?
18. If the economy's potential output is 13 trillion, what is the output gap?
19. Which economic indicator is most commonly used to determine the health of the economy during the business cycle?
20. True or False: Output gaps can persist for long periods without affecting economic policy.
21. What is likely to occur if inflation rises significantly during an expansion?
22. What does a negative output gap typically indicate about consumer behavior?
23. Which of the following describes a period of growth following a recession?
24. Which of the following best describes actual output?
Related Study Sets
AS-AD-Modell Makroökonomie Prüfungsfragen
Solow-Wachstumsmodell Steady State Karteikarten
Klausur: Phillips-Kurve Inflation und Arbeitslosigkeit
Geldschöpfung der Geschäftsbanken Zusammenfassung
Keynesianismus und Monetarismus Karteikarten
Nachfrage Notizen
Staatshaushalt grob
Klausur: IS-LM-Modell Makroökonomie
Create Your Own Study Set
Upload a PDF, paste your notes, or describe a topic – AI generates flashcards, quizzes and more in seconds.
