Introduction

This section deals with the determination of the turning points of the reference cycle, that is, with the measurement of business cycles. This is a complicated topic and you are only expected to gain a broad idea of how business cycles are measured in practice.

Turning points of the reference cycle: Activities

1. To determine the turning points of the reference cycle, it is sufficient to analyse the movements in a broad macro-economic aggregate such as real GDP.

Incorrect.  The statement is false.

While movements in real GDP are an important variable in determining the turning points of a reference cycle, they are not sufficient on their own.

Correct.  The statement is indeed false.

While movements in real GDP are an important variable in determining the turning points of a reference cycle, they are not sufficient on their own.

2. In South Africa the turning points of the reference cycle are determined by Statistics South Africa (Stats SA).

Incorrect.  The statement is false.

They are determined by the South African Reserve Bank.

Correct.  The statement is indeed false.

They are determined by the South African Reserve Bank.

3. A time series is set of observations, results, or other data obtained …

Correct.

A time series is set of observations, results, or other data obtained over a period of time, usually at regular intervals.  Examples are real GDP data, monthly sales figures and quarterly inventory data.

If data is collected at the same point in time, it is cross-section data.  An example is the percentage change in share prices on a particular day on the Johannesburg Stock Exchange, or age and educational levels of the South African population in a given year.

Incorrect.

Data obtained at the same point in time is cross-section data.  An example is the percentage change in share prices on a particular day on the Johannesburg Stock Exchange, or age and educational levels of the South African population in a given year.

A time series is set of observations, results, or other data obtained over a period of time, usually at regular intervals.  Examples are real GDP data, monthly sales figures and quarterly inventory data.

4. A table containing the average wages earned in different sectors of the economy in a particular year is an example of …

Incorrect.

It is cross-section data since it is for a particular point in time and ordered according to criteria other than time.

Correct. It is indeed cross-section data.

This data is for a particular point in time and ordered according to criteria other than time.

5. A table containing annual data on gross fixed investment for the period 1960 to 2000 is an example of …

Correct.  It is indeed time series data.

It is data obtained over a period of time from 1960 to 2000.

Incorrect.  It is time series data.

It is data obtained over a period of time from 1960 to 2000.

6. A set of quarterly data on real final consumption expenditure by general government for the period 1970 to 1990 is an example of ….

Correct.  It is indeed time series data.

It is data obtained over a period of time from 1970 to 1990.

Incorrect.  It is time series data.

It is data obtained over a period of time from 1970 to 1990.

7. The impact of a pandemic such as Covid-19 on time series data is an example of a …

Incorrect.  It is random variation.

It is an unpredictable event that causes erratic and unpredictable variations in time series data.

A trend is a long-term pattern or movement of a time series usually spanning over a complete business cycle.

Incorrect.  It is random variation.

It is an unpredictable event that causes erratic and unpredictable variations in time series data.

Cyclical variation involves non-periodic recurring fluctuations around the long-term trend associated with the business cycles (the ups and downs).

Incorrect.  It is random variation.

It is an unpredictable event that causes erratic and unpredictable variations in time series data.

Seasonal variation occurs within a year and is due to the variation in the level of the variable which recurs from year to year. These variations may be due to seasons, weather conditions, habits, customs or traditions.

Correct.  It is indeed random variation.

It is an unpredictable event that causes erratic and unpredictable variations in time series data. Other examples are droughts, famines, floods and earthquakes.

8. The decrease in construction activity during the Christmas holidays is an example of a …

Incorrect.  It is seasonal variation.

Seasonal variation occurs within a year and is due to the variation in the level of the variable which recurs from year to year. These variations may be due to seasons, weather conditions, habits, customs or traditions. It is customary for the construction industry to close early in the Christmas season.  Another example is the increase in retail sales during the Christmas season.

A trend is a long-term pattern or movement of a time series usually spanning over a complete business cycle.

Incorrect.  It is seasonal variation.

Seasonal variation occurs within a year and is due to the variation in the level of the variable which recurs from year to year. These variations may be due to seasons, weather conditions, habits, customs or traditions. It is customary for the construction industry to close early in the Christmas season.  Another example is the increase in retail sales during the Christmas season.

Cyclical variation involves non-periodic recurring fluctuations around the long-term trend associated with the business cycles (the ups and downs).

Correct.  It is indeed seasonal variation.

Seasonal variation occurs within a year and is due to the variation in the level of the variable which recurs from year to year. These variations may be due to seasons, weather conditions, habits, customs or traditions. It is customary for the construction industry to close early in the Christmas season.  Another example is the increase in retail sales during the Christmas season.

Incorrect. It is seasonal variation.

Seasonal variation occurs within a year and is due to the variation in the level of the variable which recurs from year to year. These variations may be due to seasons, weather conditions, habits, customs or traditions. It is customary for the construction industry to close early in the Christmas season.  Another example is the increase in retail sales during the Christmas season.

Random variation is an unpredictable event that causes erratic and unpredictable variations in time series data. Other examples are droughts, famines, floods and earthquakes.

9. Weekly data on retail sales have to be seasonally adjusted before meaningful conclusions can be drawn.

Correct.  The statement is indeed true.

Seasonal adjustment is a method of data smoothing.  Since retail sales exhibit seasonal variations, the data (if less than a year) needs to be seasonally adjusted so as not to underestimate or overestimate the changes in the data. If you use December data for retail sales, you would tend to overestimate retail sales for the coming year; if you use the data for January, you will tend to underestimate the retail sales for the coming year.

Incorrect.  The statement is true.

Seasonal adjustment is a method of data smoothing.  Since retail sales exhibit seasonal variations, the data (if less than a year) needs to be seasonally adjusted so as not to underestimate or overestimate the changes in the data. If you use December data for retail sales, you would tend to overestimate retail sales for the coming year; if you use the data for January, you will tend to underestimate the retail sales for the coming year.

Business cycle phases of South Africa

This activity is based on the data in the South African Quarterly Bulletin on the Business Cycles Phases of South Africa

10.a How long was the shortest upward phase?

months

Correct. It lasted for 7 months.

[Insert video clip]

Incorrect.  It lasted for 7 months.

[Insert video clip]

10.b How long was the longest upward phase?

months

Correct. It lasted for 99 months.

[Insert video clip]

Incorrect. It lasted for 99 months.

[Insert video clip]

10.c How long was the shortest downward phase?

months

Correct. It lasted for 7 months.

[Insert video clip]

Incorrect. It lasted for 7 months.

[Insert video clip]

10.d How long was the longest downward phase?

months

Correct. It lasted for 51 months.

[Insert video clip]

Incorrect. It lasted for 51 months.

[Insert video clip]

10.e In November 1996 a peak was reached. The trough was reached in …

eg. January 2010

Correct. The trough was reached in In August 1999.

[Insert video clip]

Incorrect. The trough was reached in In August 1999.

[Insert video clip]

10.f In November 2007 a peak was reached. The next peak was reached in …

eg. January 2010

Correct.  The peak was reached in November 2013.

[Insert video clip]

Incorrect. The peak was reached in November 2013.

[Insert video clip]

10.g For how many months did the full business cycle last that started with a peak in November 2007?

months

Correct. It was for 72 months.

[Insert video clip]

Incorrect. It was for 72 months.

[Insert video clip]

10.h In December 2018 the South African economy was in …

Incorrect.

The South African economy was in a downward phase.

[Insert video clip]

Correct.

The South African economy was indeed in a downward phase.

[Insert video clip]