Deck 9: Part B: Business Cycles, Unemployment, and Inflation

Question 1

Hyperinflation does not have a devastating impact on real output and employment.

Answer 1

False

Question 2

Unanticipated inflation benefits debtors at the expense of creditors.

Answer 2

True

Question 3

In recent years the Canadian unemployment rate has been lower than the rate in most of the European countries.

Answer 3

True

Question 4

Unanticipated inflation benefits creditors and savers.

Question 5

Households and businesses must spend time and effort obtaining the information they need to distinguish between real and nominal values such as prices, wages, and interest rates.

Question 6

The natural rate of unemployment in Canada is thought to be about 6-7 percent.

Question 7

During the past ten years the average annual rate of inflation in Canada has been less than 1 percent.

Question 8

The phase of the business cycle in which real domestic output declines is called:

A)the peak.
B)an expansion.
C)a recession.
D)the trough.

Question 9

If the total population is 175 million, the labour force is 100 million, and 89 million workers are employed, then the unemployment rate is 11 percent.

Question 10

An annual rate of inflation of 7 percent will double the price level in about 15 years.

Question 11

If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.

Question 12

Unanticipated inflation benefits some groups in the economy.

Question 13

If the price level doubles in a 23-year period, we can conclude that the average annual rate of inflation over that period was about 3 percent.

Question 14

Which phase of the business cycle would be most closely associated with an economic contraction?

A)peak
B)recession
C)trough
D)expansion

Question 15

The production of durable goods is more stable than the production of nondurables over the business cycle.

Question 16

Official unemployment statistics overstate unemployment because discouraged workers who are not actively seeking work are counted as unemployed.

Question 17

People who work part time, but desire to work full time, are considered to be officially unemployed.

Question 18

Generally speaking, output and employment are more variable over the business cycle in capital goods and consumer durable industries than they are in service and nondurable consumer goods sector.

Question 19

The phase of the business cycle where real domestic output is at a minimum is called:

A)the peak.
B)a recession.
C)the trough.
D)the pits.

Question 20

Core inflation is the underlying inflation that exists when volatile food and energy prices are omitted.

Question 21

The above diagram shows different phases of the:

A)business cycle.
B)cyclical variation.
C)recession cycle.
D)prosperity cycle.

Question 22

The production of durable goods varies more than the production of nondurable goods because:

A)durables purchases are non-postponable.
B)durables purchases are postponable.
C)nondurables purchases are postponable.
D)durables purchases and nondurable purchases are both non- postponable.

Question 23

In which of the following industries or sectors of the economy is output likely to be most strongly affected by the business cycle?

A)military goods
B)durable goods (machinery, equipment, etc.)
C)textile products (clothing)
D)agricultural commodities (wheat, corn, etc.)

Question 24

According to the economists, different kinds of shocks to the economy could be responsible for the variations in real output and employment over time.These shocks include:

A)the changes in population, innovations and money supply.
B)the changes in the level of total spending, productivity, irregular innovations and money supply.
C)the changes in the population.
D)the changes in the standards of living.

Question 25

Refer to the above diagram.The phases of the business cycle from points A to D are, respectively:

A)peak, recession, expansion, trough.
B)trough, expansion, expansion, peak.
C)expansion, recession, trough, peak.
D)peak, recession, trough, expansion.

Question 26

Most economists believe that the immediate cause of cyclical changes in the levels of real output and employment is:

A)the changes in productivity.
B)the changes in technology.
C)the changes in the level of total spending.
D)the changes in the money supply.

Question 27

To be officially unemployed a person must be in the labour force and must:

A)be actively seeking work.
B)be 21 years of age or older.
C)have just lost a job.
D)be waiting to be called back from a layoff.

Question 28

A recession is a period in which:

A)cost-push inflation is present.
B)nominal domestic output falls.
C)demand-pull inflation is present.
D)real domestic output falls.

Question 29

In the expansion phase of a business cycle:

A)the inflation rate decreases, but productive capacity increases.
B)the inflation rate and productive capacity decrease.
C)employment increases, but output decreases.
D)employment and output increase.

Question 30

The official unemployment rate:

A)involves people over 15 years of age who are not currently seeking employment.
B)is the ratio of unemployed to employed workers.
C)is the percentage of the labour force which is unemployed.
D)is the percentage of the total population which is not working.

Question 31

Refer to the above diagram.The straight line E drawn through the wavy lines would provide an estimate of the:

A)recession fluctuation.
B)growth trend.
C)natural rate of unemployment.
D)expansion trend.

Question 32

In which industry or sector of the economy is output least likely to be affected by the business cycle?

A)service industry
B)automobile industry
C)textile industry
D)petroleum industry

Question 33

The unemployment rate is the:

A)ratio of unemployed to employed workers.
B)number of employed workers minus the number of workers who are not in the labour force.
C)percentage of the labour force which is out of work.
D)percentage of the total population which is out of work.

Question 34

The severe recession of 2008 - 2009 was precipitated by:

A)a slowdown in productivity.
B)a combination of excessive money and financial frenzy.
C)a combination of a decrease in the money supply and financial frenzy.
D)A combination of a decrease in money and a productivity slowdown.

Question 35

A trough in the business cycle occurs when:

A)cyclical unemployment is at a minimum point.
B)employment and output reach their lowest levels.
C)the natural rate of unemployment is at a minimum point.
D)structural and frictional unemployment are at their highest levels.

Question 36

In which industry or sector of the economy is output least likely to be affected by the business cycle?

A)housing construction
B)automobile production
C)agricultural commodities
D)capital goods production

Question 37

During a serious recession we would expect output to fall the most in:

A)the alcoholic beverage industry.
B)the clothing industry.
C)agriculture industry.
D)the machinery and equipment industry.

Question 38

A peak in the business cycle:

A)occurs when the unemployment rate is its greatest.
B)occurs when the inflation rate is its lowest.
C)is a temporary maximum point.
D)is a temporary minimum point.

Question 39

Assuming the total population is 100 million, the civilian labour force is 50 million, and 47 million workers are employed, the unemployment rate:

A)is 3 percent.
B)is 6 percent.
C)is 7 percent.
D)is 9 percent.

Question 40

The labour force includes:

A)employed workers and persons who are officially unemployed.
B)employed workers, but excludes persons who are officially unemployed.
C)full-time workers, but excludes part-time workers.
D)permanent employees, but excludes temporary employees.

Question 41

A college or university graduate using the summer following graduation to search for a job would best be classified as:

A)not officially a member of the labour force.
B)a part of structural unemployment.
C)a part of cyclical unemployment.
D)a part of frictional unemployment.

Question 42

Official unemployment statistics:

A)understate unemployment because individuals receiving unemployment compensation are counted as employed.
B)understate unemployment because "discouraged workers" are not counted as unemployed.
C)include cyclical and structural unemployment, but not frictional unemployment.
D)overstate unemployment because workers who are involuntarily working part time are counted as being employed.

Question 43

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy.Five million of the part-time workers switch to full-time work.We can conclude that:

A)the official unemployment rate will fall.
B)the official unemployment rate will rise.
C)the official unemployment rate will remain unchanged.
D)the size of the labour force will increase.

Question 44

Suppose there are 5 million unemployed workers seeking jobs.After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work.As a result of this, the official unemployment rate would:

A)increase in the short run but eventually decline.
B)increase.
C)decline.
D)be unchanged.

Question 45

The best example of a "frictionally unemployed" worker is one who:

A)reduces productivity by causing frictions in a business.
B)is laid off during a recessionary period in the economy.
C)is in the process of voluntarily switching jobs.
D)is discouraged and not actively seeking work.

Question 46

A nation has a population of 260 million people.Of these, 60 million are retired, in the military, in institutions, or under 15 years old.There are 188 million who are employed.What is the unemployment rate?

A)4 percent
B)6 percent
C)9 percent
D)27 percent

Question 47

Part-time workers are counted as:

A)unemployed and therefore the official unemployment rate tends to overstate the level of unemployment.
B)unemployed and therefore the official unemployment rate tends to understate the level of unemployment.
C)fully employed and therefore the official unemployment rate tends to overstate the level of unemployment.
D)fully employed and therefore the official unemployment rate tends to understate the level of unemployment.

Question 48

The following information is about a hypothetical economy: Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Members of underground economy = 6
Consumer Price Index = 110
Refer to the above information.If 6 members of the labour force are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by:

A)0 percentage points.
B)2 percentage points.
C)7.5 percentage points.
D)6 percentage points.

Question 49

The unemployment rate in an economy is 12 percent.The civilian labour force is 50 million.The number of employed workers in the economy is:

A)38 million.
B)40 million.
C)42 million.
D)44 million.

Question 50

The following information is about a hypothetical economy: Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Members of underground economy = 6
Consumer Price Index = 110
Refer to the above information.The unemployment rate is:

A)18.8 percent.
B)12.5 percent.
C)16.7 percent.
D)25 percent.

Question 51

A headline reads: "Steel industry suffers slump as import competition increases and unemployment rises." This type of unemployment can best be characterized in economic terms as:

A)frictional.
B)structural.
C)cyclical.
D)natural.

Question 52

The unemployment rate in an economy is 7.5 percent.The total population of the economy is 250 million and the size of the civilian labour force is 180 million.The number of employed workers in this economy is:

A)13.5 million.
B)15.7 million.
C)166.5 million.
D)174.6 million.

Question 53

Working as an elevator operator used to be a common job in the workforce four decades ago, but today few jobs remain.The unemployment created by introduction of automatic elevators would be considered:

A)wait.
B)cyclical.
C)frictional.
D)structural.

Question 54

In an economy, 35 million workers are employed out of a labour force of 50 million and a total population of 70 million.The unemployment rate is:

A)15 percent.
B)25 percent.
C)50 percent.
D)30 percent.

Question 55

A nation has a population of 300 million people.Of these, 80 million are retired, in the military, in institutions, or under 15 years old.There are 210 million who are employed.What is the unemployment rate?

A)3.3 percent
B)3.6 percent
C)4.5 percent
D)5.2 percent

Question 56

Anne Kasperson works in her own home as a full-time caretaker and homemaker.Officially, she is:

A)unemployed.
B)employed.
C)not in the labour force.
D)in the labour force.

Question 57

The total population of an economy is 175 million, the labour force is 125 million, and the number of unemployed is 8 million.The unemployment rate for this economy is:

A)4.6 percent.
B)5.8 percent.
C)6.4 percent.
D)7.8 percent.

Question 58

Waiting for employment and "searching for employment" are both types of:

A)cyclical unemployment.
B)hidden unemployment.
C)frictional unemployment.
D)structural unemployment.

Question 59

Kimberly voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree.With degree in hand she is now searching for a position in management.Kimberly presently is:

A)cyclically unemployed.
B)structurally unemployed.
C)frictionally unemployed.
D)not a member of the labour force.

Question 60

The presence of discouraged workers:

A)increases the size of the labour force, but does not affect the unemployment rate.
B)reduces the size of the labour force, but does not affect the unemployment rate.
C)may cause the official unemployment rate to understate the amount of unemployment.
D)may cause the official unemployment rate to overstate the amount of unemployment.

Question 61

In the depth of the Great Depression, the unemployment rate in Canada was about:

A)15 percent.
B)33 percent.
C)20 percent.
D)40 percent.

Question 62

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)compositional unemployment.

Question 63

Cyclical unemployment is a consequence of:

A)a decline in aggregate spending.
B)the decreasing relative importance of goods and the increasing relative importance of services in our economy.
C)the everyday dynamics of a free labour market.
D)technological change.

Question 64

The descriptions give the responses of four individuals to Statistics Canada.1.Mollie just graduated from university and is now looking for work.She has had three job interviews in the past month.2.George works in an automotive assembly plant.He was laid off six months ago as the economy weakened.He expects to return to work in several months when national economic conditions improve.3.Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending.She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4.Ryan lost his job last year when his company downsized and laid off middle-level managers.He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information.Which individual would be included in the calculation of the full-employment unemployment rate?

A)1 only
B)2 only
C)1 and 3
D)2 and 4

Question 65

The type of unemployment associated with recessions is called:

A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)seasonal unemployment.

Question 66

Dr.Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in P.E.I.That year, Professor Simpson would be officially counted as:

A)structurally unemployed.
B)frictionally unemployed.
C)not in the labour force.
D)employed.

Question 67

A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?

A)wait
B)cyclical
C)frictional
D)structural

Question 68

When a group of workers find that their job skills and work experience have become obsolete and are not needed by industry, this type of unemployment is:

A)search.
B)frictional.
C)structural.
D)cyclical.

Question 69

The descriptions give the responses of four individuals to Statistics Canada.1.Mollie just graduated from university and is now looking for work.She has had three job interviews in the past month.2.George works in an automotive assembly plant.He was laid off six months ago as the economy weakened.He expects to return to work in several months when national economic conditions improve.3.Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending.She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4.Ryan lost his job last year when his company downsized and laid off middle-level managers.He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information.Which individual is structurally unemployed?

A)1
B)2
C)3
D)4

Question 70

Structural unemployment:

A)is also known as frictional unemployment.
B)is the main component of cyclical unemployment.
C)is said to occur when people are waiting to be called back to previous jobs.
D)may involve a locational mismatch between unemployed workers and job openings.

Question 71

The descriptions give the responses of four individuals to Statistics Canada.1.Mollie just graduated from university and is now looking for work.She has had three job interviews in the past month.2.George works in an automotive assembly plant.He was laid off six months ago as the economy weakened.He expects to return to work in several months when national economic conditions improve.3.Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending.She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4.Ryan lost his job last year when his company downsized and laid off middle-level managers.He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information.Which individual is frictionally unemployed?

A)Mollie
B)George
C)Jeanette
D)Ryan

Question 72

If the unemployment rate is 9 percent and the natural rate of unemployment is 7.5 percent, then the:

A)frictional unemployment rate is 7.5 percent.
B)cyclical unemployment rate and the frictional unemployment rate together are 7.5 percent.
C)cyclical unemployment rate is 1.5 percent.
D)natural rate of unemployment will eventually increase.

Question 73

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

A)structural
B)cyclical
C)frictional
D)natural

Question 74

The descriptions give the responses of four individuals to Statistics Canada.1.Mollie just graduated from university and is now looking for work.She has had three job interviews in the past month.2.George works in an automotive assembly plant.He was laid off six months ago as the economy weakened.He expects to return to work in several months when national economic conditions improve.3.Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defence spending.She has been looking for similar work for a year but no company seems interested in her aircraft design skills.4.Ryan lost his job last year when his company downsized and laid off middle-level managers.He tried to find another job for a year, but was unsuccessful and quit looking for work.Refer to the above information.Which individual is cyclically unemployed?

A)1
B)2
C)3
D)4

Question 75

The natural rate of unemployment is:

A)higher than the full-employment rate of unemployment.
B)lower than the full-employment rate of unemployment.
C)found by dividing total unemployment by the size of the labour force.
D)that rate of unemployment occurring when the economy is at its potential output.

Question 76

Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line.Kevin plans to go to technical school to learn how to repair microcomputers.The type of unemployment Kevin is faced with is:

A)cyclical.
B)frictional.
C)structural.
D)natural.

Question 77

Which of the following constitute the unemployment occurring when the natural rate of unemployment exists?

A)frictional and cyclical unemployment
B)structural, seasonal and frictional unemployment
C)cyclical and structural unemployment
D)frictional, structural, and cyclical unemployment.

Question 78

Unemployment that occurs when there is a decline in total spending is called:

A)frictional unemployment.
B)cyclical unemployment.
C)structural unemployment.
D)natural unemployment.

Question 79

Cyclical unemployment is the result of:

A)expansion in the economy.
B)technological change in the economy.
C)seasonal variation in the labour force.
D)a decline in total spending.

Question 80

Canada's economy is considered to be at "full employment" when:

A)90 percent of the total population is employed.
B)90 percent of the labour force is employed.
C)about 6-7 percent of the labour force is unemployed.
D)100 percent of the labour force is employed.