CA Foundation Economics Business Cycles Multiple Choice Questions

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CA Foundation Economics Business Cycles Multiple Choice Questions

Question 1. Rampant unemployment is found in

  1. Boom
  2. Recovery
  3. Contraction
  4. Depression

Answer: 4. Depression

Because very much unemployment is seen in depression

Question 2. According to economists trade cycle is a purely monetary phenomenon

  1. Schumpeter
  2. Pigou
  3. Hawtrey
  4. Marshall

Answer: 3. Hawtrey

The trade cycle is pure. Monetary phenomenon’ is said by one and only Hawtrey

Question 3. The greatest depression suffered by the economy in that year.

  1. 1924
  2. 1930
  3. 2008
  4. 2009

Answer: 2. 1930

1930 was a year in which the greatest depression suffered by the economy

Question 4. The last stage of recession is called

  1. Depression
  2. Recovery
  3. Slowdown
  4. All of these.

Answer: 1. Depression

Depression is the last stage of recession and does not slow down and
recovery

Question 5. In the long run, a reduction in labor supply would cause output to and the aggregate price level to.

  1. Fall; rise
  2. Fall, fall
  3. Rise, fall
  4. Rise, rise.

Answer: 1. Fall; rise

If a firm in the long run, reduces the supply of labor then it will cause a fall in output with the rise in aggregate price.

Question 6. Which of the following macroeconomic variables would you include in an index of leading economic indicators?

  1. Employment
  2. Inflation
  3. Real interest rates
  4. Residential investment

Answer: 4. Residential investment

The variables that change before the real output changes are called’ leading indicators’. They often change before large economic adjustments. It will include residential investment as one of its variables.

Question 7. Industries that are extremely sensitive to the business cycle are the

  1. Durable goods and service sectors
  2. Nondurable goods and service sectors
  3. Capital goods and non-durable goods sectors
  4. Capital goods and durable goods sectors

Answer:  4. Capital goods and durable goods sectors

Capital goods and durable goods both are of the same nature i.e. long-term period. These goods are extremely sensitive to the business cycle. Without these business can not go smoothly by.

Question 8. An economic variable that moves in the opposite direction as aggregate economic activity down in expansions, up in contractions is called.

  1. Procyclical
  2. Countercyclical
  3. A cyclical
  4. A leading variable

Answer: 2. Countercyclical

An economic variable that moves in the opposite direction as aggregate economic activity (down in expansion and up in contraction) is called counter-cyclical

Question 9. How many phases are there in the business cycle?

  1. Four
  2. Five
  3. One
  4. Many

Answer: 1. Four

The business cycle has 4 Phases; expansion, peak contraction, and trough.

Question 10. The world economy suffered the longest, deepest, and most widespread depression of the 20th century during?

  1. 1934
  2. 1928
  3. 1930
  4. 1932

Answer: 3. 1930

The world economy suffered the most widespread depression of the 20th Century during the 1930s. It started in the US.

Question 11. The business cycle is contagious and in character.

  1. Local
  2. Regional
  3. National
  4. International

Answer: 4. International

The business cycle is International as it affects all over the world.

Question 12. Which External Factor affects the business cycle?

  1. Population growth
  2. Variation in government spending
  3. Money Supply
  4. Macroeconomic policies

Answer: 1. Population growth

Question 13. Which internal factor affects the Business cycle?

  1. Fluctuations in investment
  2. Natural factors
  3. Technology shocks
  4. Population growth

Answer: 1. Fluctuations in investment

Fluctuations in Investment is the Internal factor that affects the business cycle.

Question 14. Whose statement out of these is false?

  1. Hawtrey – ‘Trade cycle is purely Monetary phenomena”
  2. Keynes – “Fluctuations in aggregate Demand”
  3. Pigou – “Fluctuations in investment”
  4. Schumpeter-“Innovations”

Answer: 3. Pigou – “Fluctuations in investment”

According to Pigou, modern business activities are based on the anticipation of the business community and are affected by waves of optimism or pessimism.

Question 15. When once peak is reached, the increase in demand is halted, and then the phase begins.

  1. Trough
  2. Contraction
  3. Expansion
  4. Trend

Answer: 2. Contraction

Once a peak is reached, the increase in demand is halted and starts decreasing in certain sectors and therefore, the phase of contraction begins.

Question 16. Fashion Retailer is a business of?

  1. Cyclical business
  2. Sunrise business
  3. Sluggish business
  4. None of these

Answer: 1. Cyclical business

Businesses whose fortunes are closely related to the rates of economic growth are referred to as cyclical businesses.

Question 17. Features of business cycles include?

  1. Occurs periodically
  2. Have four different phases
  3. Originate in the Free Market Economy
  4. All of the above.

Answer: 4. Originate in the Free Market Economy

Features of the business cycle are:

  •  It occurs periodically although they do not exhibit the same regularity
  • They have four distinct phases.
  • 3. It occurs in a free market economy.
  • It is pervasive

Therefore, is the right option for all of the above.

Question 18. Which of the following is true about leading indicators?

  1. Measurable economic factors
  2. Changes after real output
  3. Both (1) and (2)
  4. None

Answer:  1. Measurable economic factors

A leading indicator is a measurable economic factor that changes before the economy starts following a particular trend/pattern.

Question 19. The internal causes of the business cycle is

  1. Fluctuation in effective demand
  2. Technology shocks
  3. Both (1) and (2)
  4. None

Answer: 1. Fluctuation in effective demand

Business Cycle is the downward and upward movement of Gross Domestic Product (GDP) around its long-term growth trend.

The internal causes of such movement include:

  • Fluctuations in effective demand
  • Fluctuations in investment
  • Variation in government spending
  • Macroeconomic policies
  • Money supply
  • Psychological factors

The external causes are: 

  • Post-war reconstruction
  • Technology shocks
  • Natural factors
  • Population growth.

Question 20. Economics activities will be declining in the phase of

  1. Expansion.
  2. Depression
  3. Contraction
  4. Peak

Answer: 3. Contraction

An expansion is characterized by increasing employment, economic growth, and upward pressure on prices.

  • A peak is the highest point when the economy is at maximum allowable output, full employment.
  • Contraction is characterised where growth slows, economic activities decline pricing pressure subsides.
  • Depression is the point where the economy has hit a bottom from which the next phase of expansion and contraction will emerge.

Question 21. Business Cycle occurs

  1. Periodically
  2. In different phases
  3. Both (1) and (2)
  4. None of the above

Answer: 3. Both (1) and (2)

Business cycles have certain features such as:

It occurs periodically although they do not exhibit the same regularity. Its duration and intensity vary. It has distinct phases of expansion, peak, contraction, and trough with indefinite length.

Question 22. According to some economists, these are the prime causes of business cycles.

  1. Fluctuations in effective demand
  2. Fluctuations in investments
  3. Macroeconomic policies
  4. All of the above

Answer: 2. Fluctuations in investments

Business cycles occur due to various causes which can be both external or internal.

These include:

  • Fluctuations in effective demand
  • Fluctuations in investment (Prime Cause)
  • Variation in Government spending
  • Macroeconomic policies
  • Money supply.

Question 23. Which is not related to the great depression of 1930?

  1. It started in the USA
  2. John Maynard Keynes regarded lower aggregate expenditure as the cause
  3. Excess Money Supply
  4. Both (1) and (2)

Answer:  3. Excess Money Supply

The Great Depression of 1930 started in the US and began worldwide. The British economist John Maynard Keynes regarded lower aggregate expenditures in the economy to be a cause of massive decline in employment and income. The economies of the world came out of recession and entered the expansion phase due to an increase in money supply, international inflow of gold, rise in government spending etc. Related by the great depression of 1930.

Question 24. Which of the following is not the phase of business cycles?

  1. Prosperity
  2. Upswing
  3. Reconstruction
  4. Depression

Answer: 3. Reconstruction

A typical business cycle has 4 distinct phases

  1. Expansiorriupswing
  2. Peak/Prosperity
  3. ContractionDownswing/Recession
  4. Trough/Depression

Business Cycles Typical Business

Question 25. Boom and depression in the business cycle are

  1. Turning point
  2. Equilibrium points
  3. Both (1) and (2)
  4. None of the above

Answer: 1. Turning points

Boom and depression are the turning points. A boom or Peak is the highest point where economic growth stabilizes for a short time and then moves in the reverse direction and the same is true with a trough or depression

Question 26. Which is not the characteristic feature of the expansion phase in the business cycle?

  1. Increase in national output
  2. Unemployment
  3. Rise in price and costs
  4. Boost in business confidence

Answer: 2. Unemployment

The expansion phase in the business cycle is characterized by an increase in national output, more employment opportunities, sales, profits, and rising stock prices.

Prices and costs also tend to rise faster. There is an increase in prosperity, high standard of living, and business confidence. The growth rate slowly reaches to peak. Thus, unemployment is not the characteristic feature of  this phase

Question 27. “Modern business activities are based on the anticipations of the business community and are affected by waves of optimism or pessimism, according to ______________

  1. Pigou
  2. Keynes
  3. Hawtrey
  4. Schumpeter

Answer:  1. Pigou

According to Pigou, “Modern business activities are based on the anticipations of the business community and are affected by waves of . optimistic or pessimism”.

Question 28. Find the odd man out Which of these is not a coincident factor?

  1. Retail sale
  2. Industrial production
  3. Inflation
  4. New orders for plant & machine

Answer: 4. New orders for plant & machine

Coincident indicators also called concurrent indicators, coincide or occur simultaneously with the business-cycle movements.

For Example: (GDP) Gross domestic product

  • Industrial production.
  • Inflation
  • Personal income
  • Retail sale
  • Financial market trends.
  • But new orders for plant and machine is a leading indicator.

Question 29. Excess capacity in capital industries leads to

  1. Peak
  2. Trough
  3. Expansion
  4. Recovery

Answer: 2. Trough

Excess capacity in capital industries leads to a trough a typical feature of depression is the fall in the interest rate. With lower interest rates, the demand for holding liquid money (i.e. in cash) increases. Industries, especially capital, and consumer
durable goods industry suffers from excess capacity. •

Question 30. Here, growth moves in reverse direction

  1. Peak
  2. Expansion
  3. Contraction
  4. Recovery

Answer: 1. Peak

The term peak refers to the top of the highest point of the business cycle. In the later stages of expansion, inputs are difficult to find as they are short of their demand and therefore input prices increase. This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time and then move in the reverse direction.

Question 31. Frictional unemployment exists in

  1. Peak
  2. Contraction
  3. Expansion
  4. Recovery

Answer: 3. Expansion

Frictional unemployment exists in the expansion phase i.e., there is an increase in national output there is involuntary unemployment is almost zero and whatever unemployment is there is either frictional (i.e. due to a change of jobs, or suspension word due to strikes or due to imperfect mobility of labor etc.

Question 32. In which stage maximum production occurs.

  1. Peak
  2. Expansion
  3. Boom or Expansion
  4. Trough or boom.

Answer: 1. Peak

The term peak refers to the top or highest point of the business cycle. Here in this stage, maximum production occurs. Inputs are difficult to find as they are short of their demand and therefore input prices increase. This stage is the end of expansion and
it occurs when economic growth has reached a point where it will stabilize for a short period.

Question 33. Unemployment is caused due to structural changes is known as?

  1. Ethnic unemployment
  2. Involuntary unemployment
  3. Structural
  4. None

Answer: 3. Structural

Unemployment is caused due to structural changes is known as structural unemployment. It is almost zero and whatever unemployment is there is either fictional (i.e. due to a change of jobs, a strike) or structural unemployment caused due to structural changes in the economy. All these types of unemployment occur in the expansion phase.

Question 34. At trough production is?

  1. High
  2. Low
  3. Negative
  4. None

Answer: 2. Low

At the trough production is low. It is a situation where there is a lower rate of interest people’s demand for holding liquid money (i.e. in cash) increases.

Despite lower interest rates, the demand for credit declines because investors’ confidence has fallen. At the depth of depression, all economic activities touch the bottom and the phase of trough is reached. It is a very agonizing period causing lots of distress for all.

Business Cycles Agonizing Period Causing Lots Of Distress

Question 35. The stage at which actual demand is stagnated?

  1. Peak
  2. Boom or Peak
  3. Contraction
  4. Tough

Answer: 2. Boom or Peak

Peak is a stage at which actual demand stagnates. Peak refers to the top or highest point of the business cycle. Output prices also rise rapidly leading to increased cost of living and greater strain on fixed-income earners.

Consumers begin to review their consumption expenditure on housing, durable goods, etc. Actual demand stagnates. This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time and then move in the reverse direction.

Question 36. A change of reaction producer cancels their order in which, stage?

  1. Peak
  2. Contraction
  3. Trough
  4. None

Answer: 2. Contraction

Contraction is a stage where the economy cannot endlessly grow. During a contraction, there is a fall in the levels of investment and employment. Producers being aware of the fact that they have indulged in excessive investment and over-production, respond by holding back future investment plans, cancellation, and stoppage of orders for equipment and all types of inputs including labor.

Question 37. Which of the following is true

  1. Depression is a severe form of trough
  2. Depreciation causes a fall in interest rates.
  3. Both (1) and (2)
  4. None

Answer: 1. Depression is a severe form of trough

Depression is a severe form of trough. During this phase of the business cycle growth rate becomes negative and the level of national income and expenditure declines rapidly. Demand for products and services decreases, prices are at their lowest and decline rapidly forcing firms to shut down several production facilities decreases, prices are at their lowest. It is a very agonizing period causing lots of distress for all.

Question 38. China’s recent slowdown caused

  1. A cycle of decline and panic across the world.
  2. Countries across the globe were able to insulate themselves from the crisis.
  3. Stock Markets in emerging economies largely remained unaffected
  4. Old technology fueled the economic decline.

Answer: 1. Cycle of decline and panic across the world.

A decline in China’s economy has caused adverse effects on other countries. It causes decline and panic across the world.

Business cycles are contagious and international. They begin in one country and mostly spread to other countries through trade relations. For example, the great depression of the 1930s in the USA and Great Britain affected almost all the countries, especially the capitalist countries of the world.

Question 39. What of the following are not external causes?

  1. Post-war reconstruction
  2. Population growth
  3. Technology factors
  4. Fluctuation in effective demand.

Answer: 4. Fluctuation in effective demand.

External causes or exogenous factors that may lead to a boom or bust are:

  • Wars
  • Post-war Reconstruction.
  • Technology shocks
  • Natural shocks
  • Population growth
  • Illustration in effective demand is an internal cause.

Question 40. Which of the following phases occurs after the threat and before the peak?

  1. Expansion
  2. Depression
  3. Boom
  4. Recession

Answer: 1. Expansion

Expansion is the phase that occurs after the trough and before the peak. Expansion is characterized by an increase in national output and other economic variables.

Question 41. Which indicators coincide as occur simultaneously with the business cycle movements?

  1. Lagging
  2. Leading
  3. Concurrent
  4. Legal.

Answer: 3. Concurrent

Coincident economic indicators also called concurrent indicators coincide or occur simultaneously with the business cycle movements.

Question 42. What is the most visible sign of recession in an economy?

  1. Fall in the level of employment
  2. Rise in the inventory cost
  3. Full in the price level
  4. Weakening stock market

Answer: 3. Full in price level

Falls in the price level are the most appropriate and visible sign of recession in an economy.

Question 43. The taxation policy of the government is part of

  1. Monetary Policy,
  2. Fiscal Policy
  3. Exim Policy
  4. Industry Policy

Answer: 2. Fiscal Policy

The taxation policy of the government comes under the fiscal policies of the government.

Question 44. During the phase of tough of the business cycle, the growth rate becomes

  1. High
  2. Low
  3. Negative
  4. Zero

Answer: 3. Negative

During the phase trough of the business cycle, the growth rate becomes negative.

Question 45. _________________________ is a measurable economic factor that changes before the economy starts to follow a particular pattern or trend.

  1. Leading indicator
  2. Coincident indicator
  3. Heading indicator
  4. Concurrent indicator

Answer: 1. Leading indicator

A Leading indicator is a measurable economic factor that changes before the economy starts to follow a particular pattern or trend i.e. they change before the real output changes.

Question 46. Which of the following is an internal cause of business cycles?

  1. Wars
  2. Natural factors
  3. Fluctuation in effective demand
  4. Population growth

Answer: 3. Fluctuation in effective demand

Fluctuation in effective demand is the internal causes of the business cycle rest are the external causes of the business cycle.

Question 47. Phases of business cycles are

  1. Expansion, peak, contraction, and trough
  2. Bottom, recession, tough, and boom
  3. Peak, depression, trough, and boom
  4. Peak, depression, bust, and boom

Answer: 1. Expansion, peak, contraction, and trough

Phase of business cycles are : Expansion, peak, contraction, and trough.

Question 48. Which is not an example of a coincident indicator?

  1. Inflation
  2. GDP
  3. Interest rate
  4. Financial market trend

Answer: 3. Financial market trend

Interest rate is not an example of a coincident indicator rest are examples of coincident indicators.

Question 49. During this phase, there is a fall in the level of investment and employment

  1. Contraction
  2. Depression
  3. Boom
  4. Recovery

Answer: 1. Contraction

During the phase of contraction, there is a fall in the level of investment and employment.

Question 50. The most important feature of the business cycle is

  1. Persuasive nature
  2. Regular length
  3. Periodic intensity
  4. None

Answer: 1. Persuasive nature

Persuasive nature is the most important feature of a business cycle.

Question 51. Feature is a fall in interest rates and people’s demand for holding liquid money.

  1. Contraction
  2. Peak
  3. Trough & Depression
  4. Recovery

Answer:  3. Trough and Depression

Feature of Trough and depression is a fall in interest rates and people’s demand to hold liquid money.

Question 52. Businesses that are more vulnerable to changes in the business cycle and whose fortunes are closely linked to the rate of economic growth are called as

  1. Vulnerable Business
  2. Cyclical Business
  3. Leading Business
  4. Lagging Business

Answer: 2. Cyclical Business

Businesses that are more vulnerable to changes in the business cycle and whose features are closely linked to the rate of economic growth are called cyclical businesses.

Question 53. Optimistic and Pessimistic mood of the business community also affects the economic activities is view of __________________.

  1. Hawtrey
  2. Schumpeter
  3. Pigou
  4. Marshall

Answer: 3. Pigou

Optimistic and Pessimistic modes of the business community also affect the economic activities given to Pigou.

Question 54. According to Hawtrey, which of the following is correct?

  1. Trade Cycle occurs as a result of innovation
  2. Trade Cycle is purely a monetary phenomenon
  3. Fluctuation in economic activity is due to fluctuation in demand
  4. Fluctuation in government expenditure

Answer: 2. The Trade Cycle is a purely monetary phenomenon

According to Hawtrey, the Trade cycle is purely a monetary phenomenon.

Question 55. The term business cycle refers to

  1. The ups and downs in the production of commodities
  2. The fluctuation levels of economic activity over some time
  3. Decline in economic activities over a prolonged period
  4. Increasing unemployment rate and diminishing rate of savings

Answer: 2. The fluctuation levels of economic activity over some time

The fluctuating levels of economic activity over some time The term business cycle refers to the fluctuating level of economic activity over some time.

Question 56. During the recession, the unemployment rate and output.

  1. Rises; Falls
  2. Rises; Rises
  3. Falls; Rises
  4. Falls; Falls

Answer: 1. Rises; Falls

During the recession, the unemployment rate rises and output falls.

Question 57. Which of the following is not a characteristic of business cycles?

  1. Business cycles have serious consequences on the well-being of the society
  2. Business cycles occur periodically, although they do not exhibit the same regularity
  3. Business cycles have uniform characteristics and causes
  4. Business cycles are contagious and unpredictable

Answer: 3. Business cycles have uniform characteristics and causes.

Business cycles do not have uniform characteristics and causes,

Question 58. According to ___________________ trade cycles occur due onset of innovations,

  1. Hawtrey
  2. Adam Smith
  3. J, M, Keynes
  4. Schumpeter

Answer: 4. Schumpeter

According to Schumpeter, the trade cycle occurs due to the onset of innovations.

Question 59. A measurable economic factor that changes before the economy starts follows a particular pattern/trend is

  1. Leading Factor
  2. Lagging Factor
  3. Coincident Factor
  4. Concurrent Factor,

Answer: 1.  Leading Factor

A measurable economic factor that changes before the economy starts following a particular trend is a leading factor.

Question 60. Coincident indicators are also known as

  1. Logging indicators
  2. Concurrent indicators
  3. Effective indicators
  4. Leading indicators

Answer: 2. Concurrent indicators

Concurrent indicators Coincident Indicators are

Question 61. The business cycle is contagious

  1. Local
  2. Regional
  3. National
  4. International

Answer: 4.  International ‘

The business cycle is international as it affects all over the world.

Question 62. The world economy suffered the longest deepest and most widespread depression of the 20th century during

  1. 1934
  2. 1928
  3. 1930
  4. 1932

Answer: 3. 1930

The world economy suffered the most widespread depression of the 20th century during the 1930s. It started in the US.

Question 63. The variables that change before the real output change are called as

  1. Leading indicators
  2. Trade cycle
  3. Lagging indicators
  4. Business cycle

Answer: 1. Leading Indicator

A measurable economic factor that changes before the economy starts following a particular trend is known as a leading factor.

Question 64. Which business cycle phases are known as Turning points?

  1. Trough and Depression
  2. Peak and Trough
  3. Expansion and contraction
  4. Peak and Boom

Answer: 2. Peak and Trough

Peaks and troughs of the business cycle are known as collective Turning points.

Question 65. Variables that change after real output changes are known as

  1. Leading indicators
  2. Cyclical indicators
  3. Lagging indicators
  4. Coincident indicators

Answer: 3. Lagging indicators

Variables that change after real output changes are known as lagging indicators.

Question 66. In which of the following phase of a business cycle, does actual demand stagnates?

  1. Expansion
  2. Peak
  3. Contraction
  4. Recovery

Answer: 2. Peak

This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time “Actual demand stagnates.” In the peak of the business cycle where actual demand stagnates.

Question 67. In a typical business cycle, in which phase supply exceeds demand

  1. Expansion
  2. Peak
  3. Contraction
  4. Recovery

Answer: 3. Contraction

In a Contraction of the business cycle where “Supply exceeds demand”. • The consequence is a mismatch between demand and supply.

Question 68. The rhythmic Fluctuations in aggregate economic activity that an economy experiences over some time is called

  1. Business cycle
  2. Recession
  3. Contraction phase
  4. Recovery

Answer: 1. Business cycle

The rhythmic fluctuations is aggregate economic activities that an economy experiences over some time are called the “Business Cycle”.

Question 69. Which phase of the business cycle is characterized by increase in national output, employment, aggregate demand, capital and consumer expenditure sales, profits, etc.?

  1. Depression
  2. Contraction
  3. Trough
  4. Expansion

Answer: 4. Expansion

The expansion phase is characterized by an increase in National output, employment, aggregate demand, sales, profit, and rising stock prices. These states continue till there is full employment of resources and production is at maximum.

Question 70. Coincident economic indicators are also called as

  1. Leading indicators
  2. Headed indicators
  3. Concurrent indicators
  4. Capacity indicators

Answer: 3. Concurrent indicators

Coincident economic indicators also called concurrent indicators, coincide or occur simultaneously with the business cycle movement.

Question 71. Which of the following is not a feature of the business cycle?

  1. Business cycles are contagious and are international
  2. Business cycles have uniform characteristics and causes
  3. Business cycles have serious consequences on the well-being of the society
  4. The business cycle generally original in free market economics

Answer: 2. Business cycles have uniform characteristics and causes

Business cycles have uniform characteristics and causes. It is not a feature of the Business Cycle.

Features of Business Cycle:

  • Business cycles occur periodically.
  • Business cycles have distinct phases expansion peak, contraction, and trough.
  • Business cycles do not have uniform characteristics and causes.

Question 72. Internal causes of the Business cycle is

  1. Fluctuations in investment
  2. Natural factors
  3. Technology shocks
  4. Population growth

Answer: 1.  Fluctuations in investment

Internal causes of the Business Cycle are: 

  • Fluctuations in Effective Demand.
  • Fluctuations in Investment
  • Variations in government spending
  • Macro Policies.
  • Money” Supply

Question 73. Excess capacity in capital industries leads to

  1. Peak
  2. Trough
  3. Expansion
  4. Recovery

Answer:   2. Trough

Excess capacity in capital industries leads to a trough a typical feature of depression is the fall in the interest rate. With lower interest rates, the demand for holding liquid money (i.e. in cash) increases. Industries, especially the capital and consumer durable goods industry, suffer from excess capacity.

Question 74. According to whom “Business Fluctuation is the outcome of some Psychological states of mind of the business community”:

  1. Marshall
  2. A. C. Pigou
  3. J. K. Hicks
  4. Schumpeter

Answer: 2. A. C. Pigou

According to Pigou, Modern business cycle activities are based on the anticipation of the business community and are affected by waves of optimism or pessimism. Business fluctuation is the outcome of these psychological state of mind of businessmen.

Question 75. _________ is when economic activity is increasing?

  1. Peak
  2. Depression
  3. Expansion
  4. Contraction.

Answer: 3. Expansion

The economy is moving out of recession. Money is cheap to * borrow, businesses build up inventories again and consumers start spending. GDP rises, per capita income grows, unemployment declines, and equity markets generally perform well.

Question 76. __________ is a measurable economic factor that changes at the same time when the economy starts to follow a particular pattern of trend.

  1. Leading Indicators
  2. Coincident Indicator
  3. Lagging Indicator
  4. Heading Indicator.

Answer: 2. Coincident Indicator

A third type of indicator is the coincident indicator. Coincident economic indicators, also called concurrent indicators, coincide or occur simultaneously with the business-cycle movements. Since they coincide fairly closely with changes in the cycle of economic activity, they describe the current state of the business cycle.

In other words, these indicators give information about the rate of change of the expansion or contraction of an economy more or less at the same point of time it happens. A few examples of coincident indicators are Gross Domestic Product, industrial production, inflation, personal income, retail sales, and financial market trends such as stock market prices.

Question 77. According to fluctuations in economic activities are fluctuations in aggregated effective demand.

  1. Keynes
  2. Hawtrey
  3. Pigou
  4. Marshall

Answer: 1. Keynes

According to Keynes, fluctuations in economic activities are due to fluctuations in aggregate effective demand (Effective demand refers to the willingness and ability of. consumers to purchase goods at different prices).

In a free market economy, where maximization of profits is the aim of businesses, a higher level of aggregate demand will induce businessmen to produce more. As a result, there will be more output, income, and employment. However, if aggregate demand outstrips aggregate supply, it causes inflation.

Question 78. ____________ phase is categorized by an increase in national output, employment, aggregate demand, capital & consumer expenditure.

  1. Expansion
  2. Contraction
  3. Peak
  4. Trough

Answer: 1. Expansion

The expansion phase is characterized by an increase in national output, employment, aggregate demand, capital and consumer expenditure, sales, profits, rising stock prices, and bank credit. This state continues till there is full employment of resources and production is at its maximum possible level using the available productive resources.

Involuntary unemployment is almost zero and whatever unemployment is there is either frictional (i.e. due to a change of jobs, suspended work due to strikes or due to imperfect mobility of labor) or structural (i.e. unemployment caused due to structural changes in the economy). Prices and costs also tend to rise faster.

Good amounts of net investment occur, and demand for all types of goods and services rises. There is altogether increasing prosperity and people enjoy a high standard of living due to high levels of consumer spending, business confidence, production, factor incomes, profits, and investment. The growth rate eventually slows down and reaches its peak.

Question 79. In India, Monetary policy is implemented by.

  1. RBI
  2. SEBI
  3. SBI
  4. ICICI

Answer: 1. RBI

The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, of 1934.

Question 80. The highest point of the business cycle is known as ____________

  1. Peak
  2. Expansion
  3. Contraction
  4. Trough

Answer: 1. Peak

The term peak refers to the top or the highest point of the business cycle. In the later stages of expansion, inputs are difficult to find as they are short of their demand and therefore, input prices increase. Output prices also rise rapidly leading to increased cost of living and greater strain on fixed income earners.

Consumers begin to review their consumption expenditure on housing, durable goods, etc. Actual demand stagnates. This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time and then move in the reverse direction.

Question 81. Which of the following is characteristic of the business cycle?

  1. It is sporadic
  2. It is contagious
  3. It is complex
  4. They have uniform characteristics

Answer: 2. It is contagious

Business cycles are contagious and are international. They begin in one country and mostly spread to other countries through trade relations. For example, the great depression of the 1930s in the USA and Great Britain affected almost all the countries, especially the capitalist countries of the world.

Question 82. Economic indicators required to predict the turning point of the business cycle is:

  1. Leading Indicator
  2. Lagging Indicator
  3. Coincident
  4. All of the above.

Answer: 4. All of the above

The economic indicators required to predict the turning point of the business cycle are:

  1. Leading indicator
  2. Lagging indicator
  3. Coincident

Question 83. Involuntary unemployment is zero in

  1. Expansion
  2. Peak
  3. Contraction
  4. Trough

Answer: 1. Expansion

In expansion, involuntary unemployment is almost zero and whatever unemployment is there is either frictional or structural.

Question 84. Actual Demand Stagnates in

  1. Expansion
  2. Contraction
  3. Peak
  4. Trough

Answer: 3. Peak

Actual Demand Stagnates when there is an end in expansion and a beginning of a peak. So demand stagnates at “peak”. Here, consumers begin to review their expenditures.

Question 85. A typical feature of depression is the interest rate

  1. Fall
  2. Rise
  3. Constant
  4. None of the above

Answer: 1. Fall

Depression is a severe form of recession for people; demand for liquid money increases resulting in a decrease/fall in interest rates. A fall in interest rate is a typical feature of depression.

Question 86. An indicator that changes after the real output changes?

  1. Lagging Indicator
  2. Coincident indicator
  3. Leading Indicator
  4. Concurrent Indicator

Answer:  1. Lagging Indicator

Lagging indicators reflect the economy’s historical performance they are observable after an economic trend or pattern has already, occurred.

Variables that change after real output changes are “Lagging indicators”.

Question 87. The coincident indicator is also known as

  1. Concurrent Indicator
  2. Lagging Indicator
  3. Leading Indicator
  4. None of the above

Answer: 1. Concurrent Indicator

The coincident indicator is also known as a concurrent indicator as these occur simultaneously with the business cycle movements.

Question 88. What is the leading indicator in the following?

  1. Change in GDP
  2. Change in Stock
  3. Unemployment
  4. Commercial leading Activity

Answer: 2. Change in Stock

Leading indicators are:

  • Changes in stock price.
  • New orders for capital goods.
  • New orders for consumer goods.

Question 89. __________ sector can not be a cyclical business.

  1. Electric goods
  2. House building
  3. Agriculture
  4. Restaurant

Answer: 3. Agriculture

Businesses whose fortunes are closely linked to the rate of economic growth are cyclical businesses.

Examples:  Fashion Retailers, electric goods, restaurants, house building.

Question 90. Which of the following is correct?

  1. Recession is a severe form of depression
  2. Depression is a severe form of recession
  3. In case of depression, interest rates rise
  4. All of the above

Answer: 2. Depression in a severe form of recession

Recession when is a complete and severe contraction in economic activities pushes the economy into phases of depression.

Question 91. The lowest point in the business cycle is referred to as

  1. Peak
  2. Recession
  3. Trough
  4. Expansion

Answer: 3. Trough

The Lowest point in the business cycle is referred as a trough, it is the lowest point of the business cycle in contrast to peak/boom.

Question 92. Which of the following is not the main feature of the business cycle?

  1. Occurs periodically
  2. Profit variation
  3. Worldwide impact
  4. Asynchronous

Answer: 4.  Asynchronous

Reason: There are several features of a Business Cycle given below: 

  • Occurs Periodically
  • Synchronous
  • Major Sectors are Affected
  • Profit Variation
  • Worldwide Impact

Question 93. Which of the following is not an example of cyclical business?

  1. Fashion retailers
  2. House Builders
  3. Restaurants
  4. Washing powder.

Answer: 4. Washing powder

Businesses whose fortunes are closely influenced to the rate of economic growth are referred to as “cyclical” businesses. These include fashion retailers, electrical goods, house-builders, restaurants, advertising, overseas tour operators, construction and other infrastructure firms.

Question 94. A recent example of the business cycle is the housing bubble of the US economy. This bubble burst in

  1. 1930
  2. 1998
  3. 2000
  4. 2007

Answer: 4. 2007

The ‘housing bubble’ of the US economy burst in the second half of 2007.

Question 95. Peaks and troughs of the business cycle are collectively known as

  1. Volatility
  2. Turning points
  3. Equilibrium points
  4. Real business cycle events

Answer: 2. Turning points

Peaks and troughs of the business cycle are collectively known as turning points.

Question 96. Which of the following characteristics does not belong to the expansion path of business cycles?

  1. Consumer spending on goods and services tends to rise
  2. Business confidence tends to rise.
  3. Interest rates and profits tend to rise
  4. Unemployment tends to rise

Answer: 4. Unemployment tends to rise

During the expansion path of business cycles, there is altogether increasing prosperity and people enjoy a high standard of living due to high levels of consumer spending, business confidence, production, factor incomes, profits, and investment. Involuntary
unemployment is almost zero.

Question 97. Which of the following is not a fast-moving consumer goods?

  1. Groceries
  2. Bakery
  3. Confectionaries
  4. Automobile

Answer: 4. Confectionaries

Explanation: Fast-moving consumer goods, also known as consumer packaged goods, are products that are sold quickly and at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies,
cosmetics, over-the-counter drugs, dry goods, and other consumables.

Hence, automobile industry products are not regarded as fast-moving consumer goods.

Question 98. The phase of the business cycle in which the growth rate becomes negative and the level of national income and  expenditure declines rapidly resulting in widespread unemployment:

  1. Contraction
  2. Recession
  3. Depression
  4. Recovery

Answer: 3. Depression

Depression is a severe form of recession and is characterized by extremely sluggish economic activities. During this phase of the business cycle, the growth rate becomes negative and the level of national income and expenditure declines rapidly.

Question 99. Trade cycles occur as a result of a mismatch between the aggregate demand function and aggregate supply functions who said this?

  1. Pigou
  2. Schumpeter
  3. Hawtrey
  4. Keynes

Answer: 4. Keynes

Trade cycles occur as a result of a mismatch between aggregate demand function and aggregate supply functions as said by Keynes.

Question 100. According to ______________ trade cycles occur due to the onset of innovations.

  1. Hawtrey
  2. Adam Smith
  3. J.M. Keynes
  4. Schumpeter

Answer:  4. Schumpeter

According to Schumpeter’s innovation theory, trade cycles occur as a result of innovations that take place in the system from time of time.

Question 101. Which one of the following factors is an external cause or endogenous factor that may lead to a boom or bust?

  1. Economical factor
  2. Social factor
  3. Natural factor
  4. Industrial factor

Answer:  3. Natural factor

External causes of business cycles are:

  • War
  • Post-war reconstruction
  • Technology shock
  • Natural factors
  • Population growth

Question 102. ________________ are the variables that change after the real output changes?

  1. Leading indicator
  2. Lagging indicator
  3. Coincident indicator
  4. Concurrent indicator

Answer: 2. Lagging indicator

Lagging indicators reflect the economy’s historical performance and changes in these indicators are observable only after an economic trend or pattern has already occurred. In other words, variables that change after the real output changes are called ‘Lagging Indicators’.

Question 103. According to monetarists, the prime causes of business cycles are

  1. Change in aggregate demand
  2. Monetary supply
  3. Innovations
  4. Present prices

Answer: 1. Change in aggregate demand

According to some economists, fluctuations in investments are the prime cause of the business cycle. Investment spending is considered to be the most volatile component of the aggregate demand.

Question 104. ‘Corporate profit’ is an example of which type of indicator?

  1. Leading indicator
  2. Coincident indicator
  3. Lagging indicator
  4. Concurrent indicator

Answer: 3. Lagging indicator

Corporate profit is an example of a lagging indicator that changes after real output changes.

Question 105. Coincident indicators are also called as

  1. Lagging indicator
  2. Leading indicator
  3. Concurrent indicators
  4. None

Answer: 3. Concurrent Indicators

Coincident indicators are also called as concurrent indicators

Question 106. An increase in national output and other economic variables is a characteristic of business cycles.

  1. Trough
  2. Depression
  3. Contraction
  4. Expansion

Answer: 4. Expansion

In the expansion phase, national output and all other economic variables increase.

Question 107. Those variables that change before the real output changes before large economic adjustments are called as

  1. Coincident indicator ,
  2. Leading indicator
  3. Concurrent indicator
  4. Lagging indicator

Answer:  2. Leading Indicator

Leading Indicators change before real output changes before large economic adjustments.

Question 108. Which of the following variables charges after real output changes?

  1. Coincident indicator
  2. Lagging indicator
  3. Concurrent indicator
  4. Leading indicator

Answer:  2. Lagging indicator

Lagging indicators show the variance after real output changes.

Question 109. Which of the following is not an internal factor?

  1. Fluctuations in Effective Demand
  2. Fluctuations in Investment
  3. Macro Economic Policies
  4. Post War Reconstruction

Answer: 4. Post-war Reconstruction

Post-war reconstruction is an external factor, not an internal factor

Question 110. In which phase of business cycles, do levels of investment and employment fall? –

  1. Peak
  2. Recession
  3. Expansion
  4. Contraction

Answer: 4. Contraction

Under contraction, the demand falls, investment falls, employment falls and the economy falls.

Question 111. Which of the following is not an example of a lagging indicator?

  1. Consumer price index
  2. Labor cost per unit
  3. Commercial lending
  4. Personal income

Answer: 4. Personal Income

Personal Income is a coincident Indicator, not a lagging indicator.

Question 112. Not a phase of the Business Cycle:

  1. Peak
  2. Trough
  3. Expansion
  4. Reconstruction

Answer: 4. Reconstruction

Reconstruction is not the phase of the business cycle.

Question 113. Which of the following is an Extreme or Exogenous factor, that leads to a boom or burst?

  1. Economic factor
  2. Social factor
  3. Natural factor
  4. Industrial factor

Answer: 3. Natural factor

Natural factors is exogenous. factors that lead to a boom or burst.

Question 114. Which of the following Industries are less sensitive to the Business Cycle?

  1. Consumer Goods Industry
  2. Durable Consumer Goods Industry
  3. Travel and Tourism Business
  4. Food Grain Processing Industries

Answer:  4. Food Grain Processing Industries

Food Grain Processing Industries are less sensitive to business cycles.

Question 115. Which is a feature of the Business Cycle?

  1. Pervasive in Nature
  2. Occurs in Restrictive Market Economy
  3. Periodical Regularity
  4. It has the same reasons

Answer: 1. Pervasive in Nature

Since the business Cycle is a continuous process and it occurs in a flow, hence, it is pervasive.

Question 116. The four phases of the business cycle are:

  1. Peak, recession, trough, and depression
  2. Peak, recession, trough, and boom
  3. Peak, depression, trough, and boom
  4. Peak, depression, burst, and boom

Answer: 2. Peak, recession, trough, and boom

Question 117. Internal causes of depression include

  1. Fluctuation in investments
  2. Money supply
  3. Psychological factors
  4. All of these

Answer: 4. All of these

Question 118. External factors for depression do not include

  1. Population growth.
  2. Technology shocks
  3. Macroeconomic policies
  4. Post-war reconstruction

Answer:  3. Macroeconomic policies

Question 119. The Rhythmic fluctuations in aggregate economic activity over some time are called

  1. Business cycles
  2. Trade cycles
  3. Both  (1)and(2)
  4. None of these

Answer: Both (1) and (2).

Question 120. According to trade cycles occur as a result of innovation which takes place in the system from time to time:

  1. Pigou
  2. Hawtrey
  3. Keynes
  4. Schumpeter

Answer: 4. Schumpeter

Question 121. A severe form of recession is called

  1. Boom
  2. Depression
  3. Trough
  4. Recovery

Answer: 2. Depression

Question 122. Industries that are extremely sensitive to business cycles include

  1. Nondurable goods
  2. Service Sector
  3. Capital goods and durable goods
  4. None of these

Answer: 3. Capital goods and durable cost

Question 123. Peaks and troughs of the business cycles are known collectively as

  1. Turning points
  2. Indicators
  3. Equilibrium points
  4. Contraction

Answer: 1. Turning points.

Question 124. During recession output

  1. Falls
  2. Rises
  3. Expands
  4. None of these.

Answer: 1. Falls

Question 125. Business cycles generally originate in

  1. Free market economies
  2. Imperfect economies
  3. Developed nations
  4. Low growth economies

Answer: 1. Free market economies

Question 126. At the time of the Great Depression of 1930, GDP fell around

  1. 14%
  2. 15%
  3. 20%
  4. 25%

Answer: 2. 15%

Question 127. The highest point of the business cycle is known as:

  1. Trough
  2. Peak
  3. Trend
  4. Boom

Answer: 2. Peak

Question 128. During the slowdown of the economy

  1. GDP is increasing at a fast rate
  2. GDP is increasing at a slow rate
  3. GDP is decreasing at a fast rate
  4. All of these.

Answer: 2. GDP is increasing at a slow rate

Question 129. The economic boom is characterized as a period when

  1. Rising employment
  2. High demand of imported goods
  3. Increase in investments.
  4. All of these

Answer: 4. All of these

Question 130. Which macroeconomic variables are excluded from leading economic indicators

  1. Industrial production
  2. Residential investment
  3. Money supply
  4. Inventory investment

Answer: 1. Industrial production

Question 131. When aggregate economic activity is declining, is the phase of:

  1. Expansion
  2. Contraction
  3. Recovery
  4. Trough

Answer: 2. Contraction

The trade cycle is purely a Monetary phenomenon’ is said by one and only Hawtrey

Question 132. The last stage of recession is called

  1. Depression
  2. Recovery
  3. Slowdown
  4. All of these.

Answer: 1. Depression

Depression is the last stage of recession and not slowdown and recovery

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