Question

Fluctuations in real GDP are called ________?

Select one:

a. Depressions

b. Inflation

c. business cycles

d. Recessions

Answer 1

Answer: c

This is the short-term fluctuation and known as business cycle. There are four stages in a cycle – expansion, peak, recession, and trough.

Expansion indicates an increase in real GDP – this creates inflation if the real GDP exceeds the long-run potential level.

Peak is the highest expansion of real GDP.

Recession is the decrease in real GDP – this creates deflation if the real GDP below the long-run potential level.

Trough is the highest recession.