Business Cycle

Draw a representative business cycle, and label each of the four phases. Define expansion and define recession. Use your existing knowledge of the business cycle to help you interpret current affairs. Suppose that our economy slips into a recession.
    a) What is happening to the overall level of production in the economy?
    b) Predict what is likely to be happening to the unemployment rate.
    c) Predict what is likely to be happening to household income.
    d) Predict what is likely to be happening to the level of household spending.
    e) What is likely to be happening to the inflation rate?
    f) Now suppose the government reduces income taxes on households. What effect is this likely to have on household spending, the overall output level, employment, unemployment, and the aggregate price level?

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