5.1 Introduction and Definitions
STUDY INSTRUCTIONS
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Study the introduction to chapter 4 and section 4.7 of the textbook.
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Do the activities.
CONCEPTS
Business cycle
The fluctuations in the overall level of economic activity relative to the long-term trend.
Trough
A low turning point of the business cycle.
Upswing (expansion)
The level of economic activity increases.
Peak
A high turning point of the business cycle
Contraction (downswing)
The level of economic activity decreases.
Specific cycle
A full cycle of an individual time series.
Reference cycle
The full cycle in aggregate economic activity.
LEARNING OUTCOMES
After you have worked through this section of the learning unit, you should be able to do the following:
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•
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Define the business cycle
identify the different elements of a business cycle
distinguish between the reference cycle and a specific cycle
INTRODUCTION AND DEFINITIONS: ACTIVITIES
1.
The business cycle is the pattern of expansion and contraction in economic activity relative to its
long-term trend.
o
True
o
False
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2.
Each business cycle last exactly 5 years.
o
True
o
False
3.
A peak is a ______ turning point, whereas a trough is a ______ turning point.
o
high; low
o
low; high
4.
During an upswing, the level of economic activity ________, whereas during a downswing the
level of economic activity _________.
o
decreases; increases
o
increases; decreases
5.
A peak is followed by ________, and a trough is followed by ________.
o
an expansion; a contraction
o
a contraction; an expansion
6.
A reference cycle only includes a peak and a contraction phase.
o
True
False
o
7.
The difference between a reference cycle and a specific cycle is that a reference cycle refers to
aggregate economic activity, whereas a specific cycle relates to a specific time series only.
o
True
o
False
INTRODUCTION AND DEFINITIONS: ACTIVITIES ANSWERS
1.
The statement is true.
The business cycle is the pattern of expansion and contraction in economic activity relative
to its long-term trend.
2.
The statement is false.
A business cycle can last for a few months to a few years.
3.
A peak is a high turning point, whereas a trough is a low turning point.
4.
During an upswing the level of economic activity increases, whereas in a downswing the
level of economic activity decreases.
5.
A peak is followed by a contraction, and a trough is followed by an expansion.
6.
The statement is false.
A reference cycle refers to a full cycle and it includes a peak, contraction, trough and
expansion. It is measured from peak to peak or trough to trough.
2
7.
The statement is true.
A specific cycle refers to the cyclical movement of a specific time series such as real
merchandise imports. A reference cycle refers to the cyclical movement of aggregate
economic activity (which is an average of a number of specific cycles).
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