CA Foundation · Paper 4 · Business Economics

Chapter 5 · Business Cycles

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Question 01

Business cycle refers to:

a permanent rise in production recurring fluctuations in economic activity around the growth trend weekly changes in share prices only government budget deficit

Business cycles are recurrent fluctuations in aggregate economic activity, especially in output, income, employment and prices.

Question 02

Business cycles are generally associated with fluctuations in:

output only employment only prices only output, income, employment and prices

Business cycles affect major macroeconomic variables together.

Question 03

A key feature of business cycles is that they are:

recurrent but not strictly periodic perfectly regular every year always caused by monsoon failure only limited only to agriculture

Business cycles recur, but their exact duration and intensity are not fixed.

Question 04

The phase of business cycle marked by high output, income and employment is:

depression recession prosperity or boom trough

Boom or prosperity is the expansionary phase with strong economic activity.

Question 05

The phase that follows prosperity is generally:

recovery recession revival stability

After boom, the economy normally enters recession.

Question 06

Recession is a phase in which there is generally:

rapid rise in investment and employment peak optimism complete recovery of the economy decline in output, income and employment

Recession is the contraction phase after boom.

Question 07

The lowest point of a business cycle is called:

trough or depression peak expansion inflation

The trough is the bottom of the cycle, associated with depression conditions.

Question 08

Depression is characterised by:

high profits and rising prices full employment very low output, high unemployment and low investment rapid expansion in bank credit

Depression is the most severe contractionary phase.

Question 09

Recovery phase of business cycle is marked by:

further decline in activity revival of investment, output and employment lowest level of prices and profits forever zero economic activity

Recovery begins when investment and production start rising again.

Question 10

The correct sequence of phases in a business cycle is:

depression → prosperity → recession → recovery recovery → depression → boom → recession recession → boom → depression → recovery prosperity → recession → depression → recovery

This is the standard sequence used in business cycle analysis.

Question 11

At the peak of a business cycle, the economy is closest to:

prosperity depression trough slump only

Peak is the upper turning point of prosperity or boom.

Question 12

One important feature of business cycles is that they are:

confined to a single industry always completely predictable in timing widespread or economy-wide in effect purely agricultural in nature

Business cycles affect large parts of the economy, not just one firm or one sector.

Question 13

During prosperity, employment level is generally:

very low high falling sharply in all sectors zero

Boom usually brings higher production and employment.

Question 14

During depression, prices are generally:

low or falling rising very rapidly fixed by firms forever always unrelated to demand

Weak demand during depression tends to keep prices low or falling.

Question 15

Which of the following is a common symptom of recession?

rapid increase in profit and wages everywhere full employment and optimism maximum industrial production fall in investment and rising unemployment

These are standard recession indicators.

Question 16

Which phase acts as a turning point from contraction to expansion?

boom recession trough inflation

The trough is the lower turning point after which recovery begins.

Question 17

Which one of the following best describes prosperity?

persistent pessimism and low demand high investment, high output and strong business confidence collapse of credit minimum employment

Prosperity is marked by optimism, investment and high activity levels.

Question 18

Business cycles are also known as:

trade cycles price mechanism only fiscal deficits national income accounts

Business cycles are commonly referred to as trade cycles in standard economics texts.

Question 19

Which of the following may contribute to business cycles?

changes in investment changes in money and credit changes in expectations all of these

Business cycles are multi-causal and can arise from investment, credit, innovation, and expectations.

Question 20

Which of the following is most likely during recovery?

further fall in demand and output complete stagnation of economy gradual rise in investment and employment peak inflation with no production increase

Recovery begins slowly and is marked by improving investment and employment.

Question 21

The upper turning point of a business cycle is called:

trough peak slump deflation

Peak is the top turning point after which recession begins.

Question 22

During boom, business expectations are usually:

optimistic deeply pessimistic completely absent fixed by government

Optimism in profits and sales generally supports expansion during boom.

Question 23

Which of the following is likely during depression?

high profits strong demand for capital goods heavy new investment idle capacity and widespread unemployment

These are classic signs of depression.

Question 24

Business cycles mainly reflect fluctuations in:

micro-level personal preferences only individual consumer taste only aggregate economic activity weather alone

Business cycles are macroeconomic in nature and concern aggregate activity.

Question 25

If production, employment and income rise together over time after a trough, the economy is in:

depression recovery recession collapse

This pattern defines recovery or revival.

Question 26

Which of the following is not a normal phase of business cycle?

equity dilution prosperity recession recovery

Equity dilution is a finance concept, not a phase of business cycle.

Question 27

Which statement about business cycles is correct?

they occur with exact equal duration every time they affect only developed economies they are caused by a single factor only their duration and intensity may vary from cycle to cycle

This is a standard feature of business cycles.

Question 28

The phase between peak and trough is:

prosperity only recovery only recession or contraction equilibrium

The movement downward from peak to trough is recession or contraction.

Question 29

Which of the following is likely to improve first in the early stage of recovery?

mass pessimism business confidence and investment sentiment collapse in credit excess idle capacity forever

Recovery usually starts with improved expectations and gradual revival in investment.

Question 30

The broad idea behind business cycle analysis is that economies:

move through alternating periods of expansion and contraction always remain at full employment grow in a perfectly straight line never face fluctuations in aggregate activity

That is the central concept of business cycle theory.

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