1.
Why is GDP an imperfect measure of the economy’s health? (page 311)
Read: Chapter 12 / Sec. 2 to answer the following responses: (pages 315-322; Textbook)
Read each description. Draw and label a business cycle graph with the letter of the scenario that describes an expansion, a peak, a contraction, or a trough.
A. Unemployment is high, interest rates may be lowering and many businesses are not investing, but real GDP is no longer falling.
B. Business production is down and unemployment is rising. Real GDP has been falling in recent months.
C. Unemployment has been dropping and businesses are doing well. Real GDP is experiencing a long-term increase.
D. Business is doing well and unemployment is low, but real GDP is no longer rising.
3. What are the main economic variables affect the business cycle?
4. Explain how consumer confidence plays a role in the business cycle?

5. Explain how are external shocks different from the other factors that affect the business cycle?
Provide an example of how external shocks can impact the economy.
6. Explain how an increase in business investment in capital is both a cause and a result of economic expansion?
7. Explain why is it difficult to predict the future of a business cycle. Provide two examples of
“leading indicators” that economists use to predict changes in the business cycle.
8. Identify the factors that contributed to the recession of the 1970’s.
Read: Chapter 12 / Sec. 3 to answer the following responses: (pages 323-330; Textbook)
9. Explain the benefits that “capital deepening” provides for both firms and employees.
10. How can “capital deepening” offset the negative effects of a trade deficit (See “foreign trade”)
11. Explain the impact that technological progress has on a nation’s GDP and overall economic growth.