What is the business cycle and why does it occur?
What will be an ideal response?
The business cycle is alternating periods of economic expansions and recessions. The business cycle occurs due to the combined effects of economic shocks and nominal price and wage stickiness. Shocks alter the consumption and investment decisions of households and firms, given current nominal prices and wages. With sticky prices and wages, shocks cause output to fluctuate, altering real GDP.
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Which of the following statements is FALSE?
A) saving = disposable income - consumption B) consumption + saving = disposable income C) consumption = saving - disposable income D) disposable income - saving = consumption
In the quantity equation framework for understanding the determinants of long-run inflation, a drop in consumer confidence ________ velocity, putting ________ pressure on inflation
A) raises, upward B) raises, downward C) lowers, upward D) lowers, downward