Deck 10: Short-Term Economic Fluctuations

Question 1

The duration of a recession is measured from:

A)peak to trough.
B)trough to peak.
C)peak to peak.
D)trough to trough.

Answer 1

peak to trough.

Question 2

Which of the turning points are troughs? The following data give the dates of successive turning points in U.S.economic activity and the corresponding levels of real GDP at the time.

A)(A), (B), and (C)
B)(C), (D), and (E)
C)(A), (C), and (E)
D)(B) and (D)

Answer 2

(B) and (D)

Question 3

Which of the turning points are peaks? The following data give the dates of successive turning points in U.S.economic activity and the corresponding levels of real GDP at the time.

A)(A), (B), and (C)
B)(C), (D), and (E)
C)(A), (C), and (E)
D)(B) and (D)

Answer 3

(A), (C), and (E)

Question 4

A boom is:

A)a period in which the economy is growing at a rate significantly below normal.
B)the high point of economic activity prior to a downturn.
C)a particularly severe and protracted recession.
D)a particularly strong and protracted expansion.

Question 5

The economy experienced a recession that lasted from: The following data give the dates of successive turning points in U.S.economic activity and the corresponding levels of real GDP at the time.

A)July 1953 to May 1954.
B)May 1954 to April 1957.
C)July 1953 to April 1957.
D)May 1954 to April 1958.

Question 6

An informal definition of a recession is at least ______ consecutive quarters of declining real GDP.

A)two
B)four
C)six
D)eight

Question 7

A period in which the economy is growing at a rate significantly below normal is called a(n):

A)expansion.
B)boom.
C)peak.
D)recession.

Question 8

The beginning of a recession is called the:

A)depression.
B)expansion.
C)peak.
D)trough.

Question 9

In the United States since 1929, the duration of recessions on average has been:

A)longer than the duration of expansions.
B)shorter than the duration of expansions.
C)steadily decreasing.
D)steadily increasing.

Question 10

The end of a recession is called the:

A)trough.
B)expansion.
C)peak.
D)boom.

Question 11

A period in which the economy is growing at a rate significantly above normal is called a(n):

A)depression.
B)expansion.
C)peak.
D)recession.

Question 12

The economy experienced an expansion that lasted from: The following data give the dates of successive turning points in U.S.economic activity and the corresponding levels of real GDP at the time.

A)July 1953 to May 1954.
B)May 1954 to April 1957.
C)July 1953 to April 1957.
D)May 1954 to April 1958.

Question 13

The longest and most severe recession in the United States since 1925 began in:

A)1929.
B)1945.
C)1957.
D)1982.

Question 14

A depression is:

A)a particularly severe and protracted recession.
B)the high point of economic activity prior to a downturn.
C)the low point of economic activity prior to a recovery.
D)a particularly strong and protracted expansion.

Question 15

In reference to short-term economic fluctuations, the "peak" refers to:

A)a period in which the economy is growing at a rate significantly above normal.
B)the high point of economic activity prior to a downturn.
C)the high point of economic activity prior to a recovery.
D)a particularly strong and protracted expansion.

Question 16

During recessions, the change in real GDP is:

A)always positive.
B)always negative.
C)most often positive, but occasionally negative.
D)most often negative, but occasionally positive.

Question 17

The longest expansion of the United States economy since 1925 began in:

A)1991.
B)1945.
C)1961.
D)1982.

Question 18

Which of the following periods was an expansion? The following data give the dates of successive turning points in U.S.economic activity and the corresponding levels of real GDP at the time.

A)November 1970 through November 1973
B)December 1969 through November 1970
C)November 1970 through March 1975
D)December 1969 through November 1973

Question 19

An expansion is:

A)a period in which the economy is growing at a rate significantly below normal.
B)a period in which the economy is growing at a rate significantly above normal.
C)the high point of economic activity prior to a downturn.
D)the low point of economic activity prior to a recovery.

Question 20

In reference to short-term economic fluctuations, the "trough" refers to:

A)a period in which the economy is growing at a rate significantly below normal.
B)the low point of economic activity prior to a downturn.
C)the low point of economic activity prior to a recovery.
D)a particularly strong and protracted recession.

Question 21

Which of the following does not describe a characteristic of short-term economic fluctuations?

A)Expansions and recessions are felt in only a few sectors of the economy.
B)Expansions and recessions are irregular in length and severity.
C)The unemployment rate rises during recessions.
D)Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

Question 22

In the figure, which interval represents a business cycle expansion? Refer to the figure below.

A)A to B
B)B to C
C)A to C
D)B to D

Question 23

In the figure, a business cycle trough is shown by which point(s)? Refer to the figure below.

A)A and C and E
B)B and D
C)A only
D)D only

Question 24

In the figure, a business cycle peak is shown by which point(s)? Refer to the figure below.

A)A and C and E
B)B and D
C)D only
D)E only

Question 25

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

A)Federal Reserve Board.
B)Congressional Budget Office.
C)National Bureau of Economic Research
D)Council of Economic Advisers.

Question 26

Short-term economic fluctuations are ______ in length and severity and ______ to predict.

A)regular; difficult
B)regular; easy
C)irregular; easy
D)irregular; difficult

Question 27

Economic activity moves from a period of expansion to a ______ and then moves into a period of ______ until it reaches a _____.

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

Question 28

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of ______ indicators of economic activity.

A)coincident
B)preceding
C)lagged
D)real

Question 29

In determining the beginning of recessions, the NBER Business Cycle Dating Committee looks for evidence of decline in:

A)specific sectors of the economy.
B)the rate of inflation.
C)the entire economy.
D)the stock market.

Question 30

Typically, the unemployment rate ______ during a recession and ______ during an expansion.

A)rises; rises even more
B)rises; falls
C)rises; does not change
D)falls; rises

Question 31

Since 1925, the longest expansion in the United States lasted:

A)120 months.
B)21 months.
C)43 months.
D)60 months.

Question 32

Economic activity moves from a trough into a period of ______ until it reaches a ______ and then into a period of _______.

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

Question 33

Which of the following does not describe a characteristic of short-term economic fluctuations?

A)Expansions and recessions are felt throughout the economy.
B)Expansions and recessions are irregular in length and severity.
C)The unemployment rate rises during recessions.
D)Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

Question 34

Recessions begin at ______ and end at _____.

A)the highest unemployment rate; the lowest unemployment rate
B)the lowest unemployment rate; the highest unemployment rate
C)a peak; a trough
D)a trough; a peak

Question 35

The duration of an expansion is measured from:

A)peak to trough.
B)trough to peak.
C)peak to peak.
D)trough to trough.

Question 36

Indicators of economic activity that move at the same time as the overall economy are called ______ indicators.

A)short-term
B)long-term
C)real
D)coincident

Question 37

Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2007-2009 recession were all of the following except:

A)industrial production.
B)total sales in manufacturing, wholesale trade, and retail trade.
C)the consumer price index.
D)nonfarm employment.

Question 38

Recessions in the United States typically are:

A)limited to a few industries.
B)limited to specific regions of the country.
C)widely felt outside the United States.
D)confined to the domestic economy.

Question 39

Since 1925, the longest recession in the United States lasted:

A)120 months.
B)21 months.
C)43 months.
D)60 months.

Question 40

In the figure, which interval represents a business cycle recession? Refer to the figure below.

A)A to B
B)B to C
C)A to C
D)B to D

Question 41

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the:

A)budget deficit.
B)trade deficit.
C)output gap.
D)full-employment rate.

Question 42

An expansion occurs when ______, when _______, or when both of these occur.

A)potential output grows rapidly; actual output rises above potential output.
B)potential output grows slowly; actual output rises above potential output
C)potential output grows rapidly; actual output equals potential output
D)potential output grows slowly; actual output equals potential output

Question 43

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for:

A)the decline in the natural rate of unemployment.
B)short-term economic fluctuations.
C)increasing wage inequality.
D)skill-biased technological change.

Question 44

______ post-World War II ______ have been preceded by increases in inflation.

A)Many; expansions
B)Few; recessions
C)All; expansions
D)Many; recessions

Question 45

When there is a recessionary gap, capital and labor resources are:

A)not being fully utilized.
B)decreasing in number.
C)misallocated.
D)producing beyond their capacity.

Question 46

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n):

A)budget deficit.
B)trade deficit.
C)expansionary gap.
D)recessionary gap.

Question 47

Potential output is:

A)equal to actual output.
B)also known as the output gap.
C)the same as the natural rate of unemployment.
D)the maximum sustainable amount of output.

Question 48

Which of the following is most likely to occur in the labor market during a recession?

A)The growth rate of real wages declines.
B)Bonuses and promotions become more frequent.
C)New entrants to the labor market have an easier time finding jobs.
D)The supply of labor increases dramatically.

Question 49

If actual output equals potential output, unusually slow potential output growth would tend to result in:

A)a recession.
B)an expansion.
C)an output gap.
D)a recessionary gap.

Question 50

A recession occurs when ______, when _______, or when both of these occur.

A)potential output grows slowly; actual output falls below potential output
B)potential output grows slowly; actual output rises above potential output
C)potential output grows rapidly; actual output equals potential output
D)potential output grows rapidly; actual output falls below potential output

Question 51

Recessions tend to be ______ by ______ the rate of inflation.

A)followed; an increase in
B)followed; a decrease in
C)preceded; a decrease in the stability of
D)neither preceded nor followed; any change in

Question 52

A country's actual output ______ its potential output.

A)can never exceed
B)can never fall below
C)can only temporarily exceed
D)is always be approximately equal to

Question 53

Workers in durable-goods industries are ______ workers in service industries to lose their jobs during a recession.

A)much less likely than
B)more likely than
C)less likely than
D)equally likely as

Question 54

Which of the following workers is most likely to lose his/her job during a recession?

A)Construction worker
B)Baker
C)Farmer
D)Barber

Question 55

If potential output for an economy equals $8 billion and actual output equals $7 billion, then this economy's output gap should be expressed as:

A)-$1 billion.
B)$1 billion.
C)12.5 percent.
D)-12.5 percent.

Question 56

When actual output is less than potential output there is a(n):

A)budget deficit.
B)budget surplus.
C)trade deficit.
D)recessionary gap.

Question 57

When actual output is greater than potential output there is a(n):

A)budget deficit.
B)budget surplus.
C)expansionary gap.
D)recessionary gap.

Question 58

Which of the following workers is least likely to lose his/her job during a recession?

A)Carpenter
B)Automobile assembly line worker
C)Roofer
D)Police officer

Question 59

When recessions are the result of slowing growth in potential output, the government's best policy is to:

A)increase aggregate demand.
B)decrease aggregate supply.
C)promote saving and investment.
D)reduce government spending.

Question 60

The increase in the unemployment rate during a recession is associated with which type of unemployment?

A)Frictional unemployment
B)Cyclical unemployment
C)Structural unemployment
D)Nominal unemployment

Question 61

In a recession, cyclical unemployment:

A)is rising.
B)exceeds the natural rate of unemployment.
C)is falling.
D)equals the natural rate of unemployment.

Question 62

The changing age structure of the US population and more efficient labor markets are both possible explanations for:

A)the decline in the natural rate of unemployment.
B)the increase in the cyclical rate of unemployment.
C)the 2001 recession.
D)the stagnation of real wages.

Question 63

If the output gap equals -3.2 percent, then:

A)cyclical unemployment equals the sum of structural and frictional unemployment.
B)there is a recessionary gap.
C)there is no cyclical unemployment.
D)potential GDP is lower than actual GDP.

Question 64

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:

A)-1 percent.
B)1 percent.
C)-1.2 percent.
D)11 percent.

Question 65

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

A)decrease; decrease
B)increase; increase
C)increase; decrease
D)decrease; increase

Question 66

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion.Macroland has a(n) ______ gap equal to ______ percent of potential GDP.

A)expansionary; 8
B)expansionary; 4
C)recessionary; -8
D)recessionary; -4

Question 67

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

A)-7 percent.
B)9 percent.
C)12.5 percent.
D)7 percent.

Question 68

If the output gap equals 1.8 percent, then:

A)cyclical unemployment equals the sum of structural and frictional unemployment.
B)there is an expansionary gap.
C)there is significant cyclical unemployment.
D)potential GDP exceeds actual GDP.

Question 69

In an expansion, the cyclical rate of unemployment is often:

A)positive.
B)zero.
C)negative.
D)equal to the natural rate of unemployment.

Question 70

The natural rate of unemployment is equal to the unemployment rate when there is only:

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

Question 71

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and -2 percent cyclical unemployment, then the natural rate of unemployment equals:

A)1%.
B)2%.
C)5%.
D)7%.

Question 72

If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n):

A)budget deficit.
B)trade deficit.
C)expansionary gap.
D)recessionary gap.

Question 73

Cyclical unemployment is equal to zero when:

A)there is no recessionary gap.
B)there is no expansionary gap.
C)actual GDP and potential GDP are equal.
D)frictional unemployment equals structural unemployment.

Question 74

For policymakers, the problem with a recessionary gap is ________ and the problem with an expansionary gap is ________.

A)a tendency for inflation to increase; wasted resources
B)wasted resources; a tendency for inflation to increase
C)an increase in cyclical unemployment; an increase in structural unemployment
D)an increase in structural unemployment; an increase in cyclical unemployment

Question 75

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

A)lower than
B)approximately equal to
C)higher than
D)more predictable than

Question 76

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

A)11 percent.
B)1.2 percent.
C)1 percent.
D)-1 percent.

Question 77

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

A)3%.
B)4%.
C)5%.
D)6%.

Question 78

If potential output equals $8 billion and actual output equals $10 billion, then this economy's output gap should be expressed as:

A)$2 billion.
B)20 percent.
C)25 percent.
D)-25 percent.

Question 79

According to the Congressional Budget Office, from the 1970s to the 2000s, the natural rate of unemployment in the United States:

A)increased.
B)remained relatively stable.
C)fell.
D)fell to zero, and has since become negative.

Question 80

The decline in the natural rate of unemployment between the 1970s and the 2000s might be the result of:

A)the changing age structure of the population and more efficient labor markets.
B)advances in computer technology and globalization.
C)increasing wage inequality and skill-biased technological change.
D)greater quantities of human capital and increased average labor productivity.