g According to the Taylor rule, if real GDP is 4 percent below potential GDP, the Fed should Multiple Choice lower the federal funds rate by 2 percentage points. lower the federal funds rate by 4 percentage points. lower the federal funds rate by 8 percentage points. do nothing, as the economy will correct itself.

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.