Economics MCQ - Economics Section 2

6 Which of the following statements with respect to the boom phase of the economic cycle are most likely correct?
1. Demand for factors of production may exceed supply and hence the economy may experience shortages.
2. Companies might over-invest in production capacity and this could possibly trigger the next recession

Both statements are correct. The economy may face shortages because the demand for factors of production exceeds the supply. Furthermore, companies might overinvest in production capacity which can result in idling machines and workers if the economic growth slows down.

7 Which of the following is most likely to have the most pronounced cyclical behavior?

Durable goods have a long useful life in comparison to non-durables and services. Therefore, consumers tend to delay purchase when economic outlook is not favorable.

8 Analysts closely follow new orders for capital equipment to understand an economy’s trend, but exclude defense and aircraft orders. The most likely reason is:

Business cycle indicators need to represent the activities in the whole economy and this should not be influenced by some particular sectors that may have uncorrelated fluctuations.

9 Construction orders are less sensitive to business cycles as compared to equipment orders because:

It usually takes much longer time to plan and complete large construction projects than for equipment orders.

10 Inventories can reflect growth because they:

Inventory level tend to forcefully move up or down.