#1
Which of the following is NOT a common cause of economic downturns?
Rising government expenditure
ExplanationIncreased government spending typically aims to stimulate economic growth rather than causing downturns.
#2
What economic indicator typically decreases during an economic downturn?
Gross Domestic Product (GDP)
ExplanationA decrease in GDP reflects a decline in economic activity, a hallmark of economic downturns.
#3
What is the term for a prolonged period of economic decline across multiple sectors of the economy?
Economic depression
ExplanationAn economic depression signifies severe and sustained economic downturns, marked by high unemployment and low consumer confidence.
#4
Which of the following is a fiscal policy tool used to counteract economic downturns?
Increasing government spending
ExplanationBy injecting funds into the economy, increased government spending aims to stimulate demand and economic activity during downturns.
#5
What is the term used to describe a period of negative economic growth lasting for two consecutive quarters?
Economic recession
ExplanationRecessions indicate prolonged economic contraction, often marked by reduced consumer spending and investment.
#6
Which of the following is a typical symptom of an economic downturn?
Declining business profits
ExplanationDecreasing business profits are common during downturns due to reduced demand and economic uncertainty.
#7
What is a liquidity trap in economics?
A situation where monetary policy becomes ineffective
ExplanationIn a liquidity trap, lowering interest rates fails to stimulate borrowing and spending, hindering monetary policy effectiveness.
#8
During an economic downturn, which sector typically experiences the most severe impact?
Manufacturing
ExplanationManufacturing sectors often face decreased demand and production during economic downturns, leading to layoffs and closures.
#9
What role does the central bank typically play during an economic downturn?
Reducing interest rates to stimulate borrowing and spending
ExplanationLowering interest rates encourages borrowing and spending, bolstering economic activity during downturns.
#10
What is the term for a sudden, severe downturn in the economy, often lasting for a short period?
Economic shock
ExplanationEconomic shocks are abrupt and severe downturns, often triggered by unexpected events, causing rapid declines in economic indicators.
#11
What is the term for a situation where the demand for goods and services falls drastically, leading to decreased production and increased unemployment?
Demand shock
ExplanationDemand shocks result from sudden drops in demand, causing economic disruptions and unemployment.
#12
What is the term for a sudden, unexpected event that causes significant economic disruption?
Black swan event
ExplanationBlack swan events are rare and unpredictable occurrences with profound impacts on economies, markets, and societies.
#13
What is the 'wealth effect' in the context of economic downturns?
The impact of changes in asset prices on consumer spending
ExplanationWhen asset prices decline during downturns, consumers feel less wealthy, reducing their spending.
#14
Which of the following is NOT a characteristic of an economic downturn?
Increased consumer confidence
ExplanationEconomic downturns typically lead to decreased consumer confidence due to uncertainty and financial strain.
#15
What is the term for a situation where investors withdraw their capital from financial markets, leading to a rapid decline in asset prices?
Market panic
ExplanationMarket panics entail mass withdrawals of capital from financial markets, causing sharp asset price declines and financial instability.
#16
What is the term for a situation where the rate of inflation is high, economic growth is slow, and unemployment is high?
Stagflation
ExplanationStagflation is characterized by the simultaneous presence of high inflation, slow economic growth, and elevated unemployment, posing challenges for policymakers.
#17
What is the term for a situation where banks reduce lending and credit availability, leading to decreased spending and investment?
Credit squeeze
ExplanationCredit squeezes occur when banks tighten lending standards, reducing credit availability and hindering economic activity.