Question

The Business Cycle

A graph titled the Business Cycle has time on the x-axis and Economic output on the y-axis. 3 points are connected with a curved line. The line increases and then decreases significantly to point 1. Point 1 drops significantly to point 2, which is the lowest point. Point 2 increases to point 3, which is at the same level as point 1.

A family is trying to sell their home at point 2 on the graph.
How might this affect the sale of their home? Check all that apply.

Their home will likely sell for a low price.
Their home will likely sell for a high price.
Their home will likely take longer to sell.
Their home will likely increase in value if they wait.
Their home will likely sell quickly.

Answer 1

Selected answers:
- ✓ Their home will likely sell for a low price.
- ✗ Their home will likely sell for a high price.
- ✓ Their home will likely take longer to sell.
- ✓ Their home will likely increase in value if they wait.
- ✗ Their home will likely sell quickly.

Why: Point 2 is the trough of the business cycle (low economic output). At a trough demand for housing is weak and unemployment/uncertainty are higher, so prices are depressed and homes tend to take longer to sell. As the cycle moves up toward recovery (point 3), demand and prices typically rise, so the home may gain value if the family waits. (Actual outcomes also depend on local housing conditions, interest rates, and the family's timeline.)