a. What three measures of the economy tend to move together during the business cycle? Which way do they move during an upturn? During a downturn? b. Who in the economy is hurt during a recession? How? c. How did Milton Friedman alter the consensus that had developed in the aftermath of the Great Depression on how the economy should be managed? What is the current goal of policy makers in managing the economy?

Three measures of the economy that tend to move together during the business cycle are gross domestic product (GDP), employment, and inflation. During an upturn (or expansion), these measures generally increase, indicating a growing economy. Specifically, GDP grows as more goods and services are produced, employment increases as businesses hire more workers, and inflation tends to rise as the demand for goods and services increases. Conversely, during a downturn (or contraction), these measures generally decrease, reflecting a shrinking economy. In this situation, GDP declines due to lower production, employment decreases as businesses lay off workers, and inflation tends to fall as demand for goods and services decreases.

During a recession, the economy contracts and numerous groups are hurt. The most obvious are workers, who face job losses, reduced working hours, and wage stagnation. Moreover, businesses face declining revenues, which can lead to closures, bankruptcies, or cost-cutting measures, including layoffs, pay freezes, and reductions in benefits. Additionally, investors are hurt as financial markets typically decline during a recession and asset prices fall, leading to paper losses and reduced returns on investments.

Milton Friedman challenged the Keynesian consensus that had developed in the aftermath of the Great Depression in favor of more laissez-faire policies. Friedman argued that excessive government intervention could exacerbate economic fluctuations and contribute to inflation, whereas acting only when necessary and allowing market forces to operate would be more beneficial. He ultimately paved the way for the development of monetarism and the modern consensus of "inflation targeting" in managing the economy. The current primary goal of policymakers in managing the economy is to maintain price stability, typically through targeting a low and stable inflation rate, to create a stable environment for sustained economic growth. In order to achieve this, central banks like the Federal Reserve use monetary policy tools such as interest rates and open market operations.