Principles of Finance · free preview
The Business Cycle and Economic Activity
The economy alternates between expansion and contraction, marked by the peak and the trough, recessions are officially declared by the National Bureau of Economic Research using a broad reading of economic activity, and cycle awareness shapes financial decisions from sales forecasts to credit policy.
1. Growth that moves in waves
Growth that moves in waves
2. Who declares a recession
Who declares a recession
3. The cycle's financial fingerprints
The cycle's financial fingerprints
4. Planning across the cycle
Planning across the cycle
5. Naming the turning points
At which two points does the business cycle change direction?
6. The NBER's definition
Which statement about how recessions are declared in the United States is correct?
7. Signs of a maturing expansion
Which cluster of developments most signals that an expansion is maturing and may be near its peak?
8. Why growth strains cash
Why can rapid sales growth during an expansion actually strain a firm's cash position?
9. Normalizing earnings
Why do analysts normalize earnings across a full business cycle before valuing a company?
10. Recession-readiness in planning
Which practice best embodies planning for the business cycle rather than predicting it?
11. The four-letter cycle arbiter
What four-letter abbreviation names the private organization that officially declares US recessions? Write the abbreviation.
12. The top of the cycle
What one-word term names the point where expansion turns into contraction? Write the term in lowercase.
13. The bottom of the cycle
What one-word term names the point where contraction ends and expansion resumes? Write the term in lowercase.
14. The shrinking economy's label
What one-word term commonly names the contraction phase of the business cycle? Write the term in lowercase.
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