Q.1 What is a business cycle?
A short-term fluctuation in stock prices
A long-term pattern of economic growth
A recurring pattern of expansion and contraction in economic activity
Government regulation of business practices
Explanation - The business cycle refers to recurring fluctuations in GDP and economic activity over time, including phases like expansion, peak, contraction, and trough.
Correct answer is: A recurring pattern of expansion and contraction in economic activity
Q.2 Which phase of the business cycle is characterized by rising GDP and employment?
Expansion
Recession
Trough
Depression
Explanation - During expansion, GDP grows, employment rises, and overall economic conditions improve.
Correct answer is: Expansion
Q.3 Which phase immediately follows the peak in a business cycle?
Expansion
Recession
Trough
Recovery
Explanation - After a peak, economic activity typically declines, leading to a recession phase.
Correct answer is: Recession
Q.4 What is the lowest point in the business cycle called?
Peak
Expansion
Trough
Recovery
Explanation - The trough is the lowest point of economic activity before recovery begins.
Correct answer is: Trough
Q.5 Which economic indicator is most commonly used to measure business cycles?
Gross Domestic Product (GDP)
Consumer Price Index (CPI)
Unemployment Rate
Interest Rate
Explanation - GDP is the most widely used measure of overall economic activity and is used to track business cycle fluctuations.
Correct answer is: Gross Domestic Product (GDP)
Q.6 What usually happens to unemployment during a recession?
It decreases
It remains constant
It increases
It is unaffected
Explanation - Economic contraction reduces demand for labor, leading to higher unemployment.
Correct answer is: It increases
Q.7 Which of the following best describes the peak phase?
Maximum GDP before decline begins
Lowest GDP before recovery
Stable growth with low inflation
Transition from recession to expansion
Explanation - The peak is when GDP reaches its highest point before the economy enters a downturn.
Correct answer is: Maximum GDP before decline begins
Q.8 What is the average duration of a typical business cycle?
1 year
2–3 years
5–7 years
10–15 years
Explanation - Most modern economies experience business cycles lasting between 5 and 7 years, though this varies.
Correct answer is: 5–7 years
Q.9 Which theory suggests business cycles are caused by changes in investment spending?
Keynesian theory
Classical theory
Rational expectations theory
Real business cycle theory
Explanation - Keynesian theory highlights fluctuations in investment as a key driver of business cycles.
Correct answer is: Keynesian theory
Q.10 Which of the following is NOT a phase of the business cycle?
Expansion
Peak
Stability
Trough
Explanation - The main phases are expansion, peak, contraction, and trough. 'Stability' is not a formal phase.
Correct answer is: Stability
Q.11 During which phase are inflationary pressures typically highest?
Expansion
Recession
Trough
Recovery
Explanation - During expansion, high demand can cause inflationary pressures in the economy.
Correct answer is: Expansion
Q.12 What is meant by a 'double-dip recession'?
Two recessions occurring back-to-back without recovery
Two peaks within the same cycle
A prolonged expansion followed by a short contraction
Two troughs separated by a long growth period
Explanation - A double-dip recession occurs when the economy recovers slightly but falls into recession again soon after.
Correct answer is: Two recessions occurring back-to-back without recovery
Q.13 Which sector is usually the first to show signs of recovery?
Agriculture
Real estate
Stock market
Public sector
Explanation - Financial markets often anticipate economic recovery and begin to rise before other sectors improve.
Correct answer is: Stock market
Q.14 Which economic variable tends to lag behind during the recovery phase?
Stock prices
Consumer confidence
Unemployment rate
Investment
Explanation - Unemployment typically improves more slowly than GDP and stock prices, making it a lagging indicator.
Correct answer is: Unemployment rate
Q.15 What is a depression in terms of business cycles?
A mild recession
A short decline in GDP
A prolonged and severe recession
A rapid recovery
Explanation - A depression is a severe and long-lasting downturn in economic activity, worse than a typical recession.
Correct answer is: A prolonged and severe recession
Q.16 Which economist is closely associated with the concept of business cycles?
Adam Smith
Karl Marx
Joseph Schumpeter
Milton Friedman
Explanation - Schumpeter is well known for his theories on innovation and business cycles.
Correct answer is: Joseph Schumpeter
Q.17 Which policy tool is most often used to stabilize business cycles?
Fiscal and monetary policy
Trade policy
Immigration policy
Environmental policy
Explanation - Governments and central banks use fiscal and monetary measures to reduce fluctuations in business cycles.
Correct answer is: Fiscal and monetary policy
Q.18 What is a leading indicator of business cycles?
Unemployment rate
Stock prices
GDP growth
Inflation
Explanation - Leading indicators such as stock prices signal upcoming changes in the economy before they occur.
Correct answer is: Stock prices
Q.19 Which of the following is a coincident indicator of business cycles?
Unemployment
GDP
Consumer confidence
Stock market
Explanation - GDP is a coincident indicator as it reflects the current state of the economy.
Correct answer is: GDP
Q.20 What term describes the period when economic activity starts increasing after a trough?
Expansion
Recovery
Recession
Peak
Explanation - Recovery refers to the phase after a trough when the economy begins to grow again.
Correct answer is: Recovery
Q.21 In which phase do businesses usually increase investment spending?
Recession
Peak
Trough
Expansion
Explanation - During expansion, businesses invest more due to growing demand and profit opportunities.
Correct answer is: Expansion
Q.22 Which of the following is an effect of prolonged contraction?
Increased employment
Decline in consumer spending
Rising GDP
Higher business investment
Explanation - During contraction, consumers cut back on spending due to uncertainty and lower incomes.
Correct answer is: Decline in consumer spending
Q.23 Which factor can trigger a business cycle downturn?
High consumer demand
Overproduction
Technological innovation
Expansionary fiscal policy
Explanation - Excess supply can reduce prices and profits, leading to a downturn in economic activity.
Correct answer is: Overproduction
Q.24 Who benefits the most during the expansion phase?
Borrowers
Savers
Unemployed workers
Exporters
Explanation - Borrowers benefit during expansion because higher incomes make it easier to repay loans.
Correct answer is: Borrowers
Q.25 Which phase of the business cycle is associated with pessimism and low confidence?
Expansion
Peak
Recession
Recovery
Explanation - Recessions are often marked by negative business sentiment and low consumer confidence.
Correct answer is: Recession