Chapter 10: Problem 13

During business cycles _____. a) troughs are followed by recessions b) troughs are followed by peaks c) peaks are followed by troughs d) peaks are followed by recessions

Short Answer

Expert verified

b) troughs are followed by peaks d) peaks are followed by recessions

Step by step solution

Understanding the terms in the question

Before answering the question, let's first understand the key terms: 1. Business cycles: A business cycle is a sequence of economic changes in the activity of an economy over time, characterized by periods of expansion, peak, contraction, and trough. 2. Trough: The trough is the bottom of the business cycle and marks the end of the contraction phase and the beginning of the expansion phase. 3. Peak: The peak is the highest point in the business cycle and marks the end of the expansion phase and the beginning of the contraction phase. 4. Recessions: A recession is a period of temporary economic decline marked by a fall in the total output, income, employment, and trade. Now, let's analyze the available options.

Option a: troughs are followed by recessions

This option states that troughs are followed by recessions. However, we know that troughs mark the end of the contraction phase and the beginning of the expansion phase. Therefore, this option is incorrect.

Option b: troughs are followed by peaks

This option states that troughs are followed by peaks. As troughs mark the end of a contraction phase and the beginning of an expansion phase, and peaks mark the end of an expansion phase, this option is correct. After a trough, the economy enters an expansion phase that ultimately leads to a peak.

Option c: peaks are followed by troughs

This option states that peaks are followed by troughs. While this option might sound plausible, it is not entirely accurate. Peaks mark the end of the expansion phase and the beginning of the contraction phase, but troughs are reached only after the contraction phase is over. Hence, this option is not the most accurate description of the business cycle sequence.

Option d: peaks are followed by recessions

This option states that peaks are followed by recessions. A peak marks the end of the expansion phase and the beginning of the contraction phase. Since a recession is characterized by a period of economic decline, it occurs after a peak. Thus, this option is also correct. In summary, based on our understanding of the business cycle, the correct answers are: b) troughs are followed by peaks d) peaks are followed by recessions