A large increase in nominal wages, perhaps orchestrated by unions, would most likely result in:
Answer(s): B
Choice "b" is correct. An increase in nominal wages represents an increase in input costs. This would shift the aggregate supply curve to the left resulting in a decrease in real GDP and an increase in the overall price level.Choice "a" is incorrect. Real GDP would decrease, not increase. Choice "c" is incorrect. The price level would increase, not decrease. Choice "d" is incorrect. Real GDP would decrease, not increase.
Economic fluctuations (or business cycles) are best described as:
Answer(s): D
Choice "d" is correct. By the definition of business cycles.Choice "a" is incorrect. This is economic growth.Choice "b" is incorrect. Business cycles refer to overall economic activity not the activity of one firm. Choice "c" is incorrect. Business cycles are not predictable and are not of equal duration nor of equal severity.
Which of the following would most likely cause real GDP to increase the most:
Choice "b" is correct. A decline in interest rates would cause the aggregate demand curve to shift right, which increases real GDP. Similarly, a decline in input costs would cause the aggregate supply curve to shift right, which also increases real GDP.Choice "a" is incorrect. Both of these events would cause real GDP to decline. Choice "c" is incorrect. A rise in interest rates would cause real GDP to decline, not increase. Choice "d" is incorrect. A decline in government spending would cause real GDP to decline, not increase.
At the peak of a business cycle:
Choice "d" is correct. The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level.Choice "a" is incorrect. Real GDP is likely to be above, not below, its potential level. Choice "b" is incorrect. Business inventories are likely to be low, not high, and there is likely to be excess demand for labor not an excess supply of labor.Choice "c" is incorrect. The overall price level is likely to be rising not falling.
Which of the following segments of the economy will be least affected by the business cycle?
Choice "d" is correct. The business cycle is the rise and fall of economic activity relative to its long- term growth trend. During a contraction or a recession, most industries experience a decline in sales and profits. Similarly, during an expansion, most industries experience an increase in sales and profits.However, health care services are typically not affected by business cycles. People need medical services regardless of whether or not the economy is doing well. Thus, the health care industry is the least affected by the business cycle.Choice "a" is incorrect. During a downturn in economic activity (recession or contraction), firm investment in new plants and equipment typically drops off substantially. Thus, the demand for commercial construction is typically low during a contraction and high during an expansion. Thus, the commercial construction industry is sensitive to the business cycle. Choice "b" is incorrect. During a downturn in economic activity (recession or contraction) firm investment in new plants and equipment typically drops off substantially. Thus, the machinery and equipment industry is sensitive to business cycles. Sales grow during an expansion, but they tend to decline during a contraction or recession.Choice "c" is incorrect. The residential construction industry is sensitive to interest rates, unemployment rates, and consumer wealth. All of these fluctuate with the business cycle. As a result, the residential construction industry is sensitive to the business cycle.
Post your Comments and Discuss AICPA CPA-Business exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CPA-Business content, but please register or login to continue.