Deck 29: Business Cycles, Unemployment, and Inflation

Question 1

During a severe recession, we would expect output to fall the most in

A)the health care industry.
B)the clothing industry.
C)agriculture.
D)the construction industry.

Answer 1

the construction industry.

Question 2

The phase of the business cycle in which real GDP declines is called

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

Answer 2

a recession.

Question 3

In the United States, business cycles have occurred against a backdrop of a long-run trend of

A)declining unemployment.
B)stagnant productivity growth.
C)rising real GDP.
D)rising inflation.

Answer 3

rising real GDP.

Question 4

Which of the following statements is true about causes of business cycle fluctuations?

A)Economists all agree that supply shocks are the cause of most business cycle fluctuations.
B)Economists all agree that productivity shocks are the cause of most business cycle changes.
C)Economists all agree that monetary changes are primarily responsible for business cycle fluctuations.
D)There are a wide range of theories as to the underlying causes of business cycle movements.

Question 5

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

A)durable purchases of durables are not postponable.
B)durable purchases of durables are postponable.
C)the producers of nondurables have monopoly power.
D)producers of durables are highly competitive.

Question 6

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are

A)military goods and capital goods.
B)services and nondurable consumer goods.
C)clothing and education.
D)capital goods and durable consumer goods.

Question 7

As it relates to economic growth, the term long-run trend refers to

A)the long-run increase in the relative importance of durable goods in the U.S.economy.
B)the long-term expansion or contraction of business activity that occurs over 50 or 100 years.
C)fluctuations in business activity that average 40 months in duration.
D)fluctuations in business activity that occur around Christmas, Easter, and other major holidays.

Question 8

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

A)Government is unable to respond by changing the amount of money in circulation.
B)Changes in total spending cause supply shocks that cause cyclical variation.
C)Prices are sticky in the short run.
D)Prices are flexible in the long run.

Question 9

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

A)military goods
B)capital goods
C)textile products
D)agricultural commodities

Question 10

The phase of the business cycle in which real GDP is at a minimum is called

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

Question 11

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

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

Question 12

Most economists agree that the immediate determinant of the volume of output and employment is the

A)composition of consumer spending.
B)ratio of public goods to private goods production.
C)level of total spending.
D)size of the labor force.

Question 13

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?

A)unexpected financial bubbles that eventually burst
B)shocks to the money supply by the nation's central bank
C)supply shocks caused by major innovations
D)All of these are identified as causes of business cycle changes.

Question 14

Innovations such as the microchip and the Internet lead to business cycle variations because

A)they cause prices to be sticky.
B)significant innovations occur irregularly and unexpectedly.
C)the central bank will often change the money supply in response.
D)they cause prices to be flexible.

Question 15

A recession is defined as 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 16

An unexpected increase in total spending will cause an increase in GDP

A)if prices are sticky.
B)if prices are fully flexible.
C)regardless of whether prices are sticky or fully flexible.
D)only if prices are stuck in the long term.

Question 17

Which of the following would most likely move the economy into a recession in the short term?

A)invention of a new product that most consumers want to buy
B)innovations in management that enhance worker productivity
C)the central bank printing less money than was anticipated
D)Congress passing a reduction in personal income tax rates

Question 18

The United States' economy is considered to be at full employment when

A)about 5 to 6 percent of the total population is unemployed.
B)90 percent of the labor force is employed.
C)about 5 to 6 percent of the labor force is unemployed.
D)100 percent of the labor force is employed.

Question 19

Recurring upswings and downswings in an economy's real GDP over time are called

A)recessions.
B)business cycles.
C)output yo-yos.
D)total product oscillations.

Question 20

Most economists agree that the immediate cause of most business cycle variation is

A)an unexpected change in the productivity of workers.
B)an unexpected change in the level of total spending.
C)the invention of new products.
D)the growth and subsequent bursting of financial bubbles.

Question 21

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, all else equal, the official unemployment rate would

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

Question 22

In the United States, the rate of unemployment is highest for

A)white teenagers.
B)African-American teenagers.
C)married women.
D)unmarried women.

Question 23

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 24

The labor 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 25

According to the Bureau of Labor Statistics, to be officially unemployed a person must

A)be in the labor force.
B)be 21 years of age or older.
C)have lost a job.
D)be waiting to be called back from a layoff.

Question 26

Kara 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.Kara presently is

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

Question 27

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

A)3 percent.
B)6 percent.
C)7 percent.
D)53 percent.

Question 28

The presence of discouraged workers Learning Objective: 29-02 Illustrate how unemployment is measured and explain the different types of unemployment.Test Bank: I Topic: Unemployment

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

Question 29

Cyclical unemployment results from

A)a deficiency of spending on goods and services.
B)the decreasing relative importance of goods and the increasing relative importance of services in the U.S.economy.
C)the everyday dynamics of a free labor market, with workers voluntarily changing jobs.
D)technological change.

Question 30

The unemployment rate of

A)women greatly exceeds that of men.
B)whites is roughly equal to that of African Americans.
C)managerial and professional workers exceeds that of construction and extraction workers.
D)teenagers is much higher than that of adults.

Question 31

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.Difficulty: 02 Medium

Question 32

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the

A)frictional unemployment rate is 5 percent.
B)cyclical unemployment rate and the frictional unemployment rate together are 5 percent.
C)cyclical unemployment rate is 4 percent.
D)natural rate of unemployment will eventually increase.

Question 33

Part-time workers who want full-time work are counted as

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

Question 34

Susie has lost her job in a Vermont textile plant because of import competition.She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available.We can say that Susie is faced with

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

Question 35

The unemployment rate is the Accessibility: Keyboard Navigation Blooms: Understand

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

Question 36

Which of the following is correct?

A)During the Great Recession, unemployment rates for men rose above those of women.
B)Unemployment rates for African-American and white workers are approximately the same.
C)Teenagers experience approximately the same unemployment rates as do adults.
D)Laborers are less vulnerable to unemployment than are professional workers.

Question 37

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

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

Question 38

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)that rate of unemployment occurring when the economy is at its potential output.
D)found by dividing total unemployment by the size of the labor force.

Question 39

Alex works in his own home as a homemaker and full-time caretaker of his children.Officially, he is

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

Question 40

The natural rate of unemployment is the

A)unemployment rate experienced at the depth of a depression.
B)full-employment unemployment rate.
C)unemployment rate experienced by the least-skilled workers in the economy.
D)unemployment rate experienced by the most-skilled workers in the economy.

Question 41

In the depth of the Great Depression, the unemployment rate in the United States was about

A)15 percent.
B)33 percent.
C)25 percent.
D)40 percent.

Question 42

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, actual GDP is

A)$300 billion.
B)$30 billion.
C)$360 billion.
D)$630 billion.

Question 43

The GDP gap measures the difference between

A)NDP and GDP.
B)NI and PI.
C)actual GDP and potential GDP.
D)nominal GDP and real GDP.

Question 44

A large negative GDP gap implies

A)an excess of imports over exports.
B)a low rate of unemployment.
C)a high rate of unemployment.
D)a sharply rising price level.

Question 45

At the economy's natural rate of unemployment,

A)the economy achieves its potential output.
B)there is only a relatively small amount of cyclical unemployment.
C)only frictional unemployment exists.
D)only structural unemployment exists.

Question 46

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is

A)$510 billion.
B)$490 billion.
C)$10 billion.
D)$990 billion.

Question 47

The aggregate cost of unemployment can be measured by the

A)amount by which actual GDP exceeds potential GDP.
B)amount by which potential GDP exceeds actual GDP.
C)excess of real GDP over nominal GDP.
D)excess of nominal GDP over real GDP.

Question 48

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 given information about a hypothetical economy.If members of the underground economy are currently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about

A)0 percentage points.
B)2 percentage points.
C)5 percentage points.
D)6 percentage points.

Question 49

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is

A)$415 billion.
B)$385 billion.
C)$15 billion.
D)$785 billion.

Question 50

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

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

Question 51

The government agency responsible for collecting and reporting unemployment data is the

A)Bureau of Labor Statistics.
B)Bureau of Unemployment.
C)Bureau of Economic Analysis.
D)Bureau of Economic Research.

Question 52

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 given information about a hypothetical economy.The rate of inflation

A)is 110 percent.
B)is 10 percent.
C)is 0 percent.
D)cannot be determined from the data.

Question 53

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 54

Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?

A)search unemployment
B)wait unemployment
C)cyclical unemployment
D)frictional unemployment

Question 55

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is

A)$360 billion.
B)$660 billion.
C)$320 billion.
D)$20 billion.

Question 56

Wait unemployment and search unemployment are both types of

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

Question 57

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 given information about a hypothetical economy.The unemployment rate is

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

Question 58

The type of unemployment associated with recessions is called

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

Question 59

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.As a result,

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 labor force will increase.

Question 60

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?

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

Question 61

Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The amount of output being forgone by the economy is

A)$12 billion.
B)$15 billion.
C)$18 billion.
D)$24 billion.

Question 62

Inflation means that

A)all prices are rising, but at different rates.
B)all prices are rising at approximately the same rate.
C)prices on average are rising, although some particular prices may be falling.
D)real incomes are rising.

Question 63

Full-employment output is also called

A)zero-unemployment output.
B)equilibrium output.
C)potential output.
D)zero-savings output.

Question 64

The consumer price index was 177.1 in 2001 and 179.9 in 2002.Therefore, the rate of inflation in 2002 was about

A)2.8 percent.
B)3.4 percent.
C)1.6 percent.
D)4.1 percent.

Question 65

Assume the natural rate of unemployment in the U.S.economy is 5 percent and the actual rate of unemployment is 9 percent.According to Okun's law, the negative GDP gap as a percentage of potential GDP is

A)4 percent.
B)8 percent.
C)10 percent.
D)2 percent.

Question 66

Given the annual rate of inflation, the "rule of 70" allows one to

A)determine whether the inflation is demand-pull or cost-push.
B)calculate the accompanying rate of unemployment.
C)determine when the value of a real asset will approach zero.
D)calculate the number of years required for the price level to double.

Question 67

Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.If the unemployment rate in the economy fell to 6 percent, we could conclude that

A)only structural unemployment remained.
B)the economy's production possibilities curve shifted outward.
C)the economy had moved from a point inside its production possibilities curve to a point on or very near the curve.
D)nominal GDP would rise, but real GDP would fall.

Question 68

Potential Real GDP = $200 Billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable.The size of the negative GDP gap as a percentage of potential GDP for the economy is

A)6 percent.
B)9 percent.
C)12 percent.
D)15 percent.

Question 69

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by

A)dividing 70 into the annual rate of inflation.
B)dividing the annual rate of inflation into 70.
C)subtracting the annual change in nominal incomes from 70.
D)multiplying the annual rate of inflation by 70.

Question 70

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about

A)8 to 9 years.
B)10 to 11 years.
C)5 to 6 years.
D)19 to 20 years.

Question 71

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced

A)inflation of 4 percent.
B)inflation of 3.33 percent.
C)deflation of 3.33 percent.
D)deflation of 4 percent.

Question 72

Unemployment rates in industrialized nations

A)all exceeded 10 percent at some point during the Great Recession.
B)vary considerably from each other.
C)tend to be about the same in each country and move together over time.
D)are less subject to business cycle fluctuations than in nonindustrialized countries.

Question 73

The relationship between the size of the negative GDP gap and the unemployment rate is

A)direct.
B)inverse.
C)undefined.
D)direct during recession but inverse during expansion.

Question 74

If actual GDP is less than potential GDP,

A)potential GDP will fall.
B)the price level will rise.
C)investment spending will fall.
D)the actual unemployment rate will be higher than the natural unemployment rate.

Question 75

Okun's law

A)measures the trade-off between the rate of inflation and the rate of unemployment.
B)indicates the number of years it will take for a constant rate of inflation to double the price level.
C)quantifies the relationship between nominal and real incomes.
D)shows the relationship between the unemployment rate and the size of the negative GDP gap.

Question 76

Compared to other industrial nations, unemployment rates in the United States

A)are significantly higher.
B)are significantly lower.
C)are significantly higher than those in Europe and significantly lower than those in Japan.
D)tend to fall somewhere in the middle over time.

Question 77

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is

A)11 percent.
B)33 percent.
C)91 percent.
D)10 percent.

Question 78

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs.This is a statement of

A)Taylor's rule.
B)Okun's law.
C)Say's law.
D)the Coase theorem.

Question 79

The annual rate of inflation can be found by subtracting

A)the real income from the nominal income.
B)last year's price index from this year's price index.
C)this year's price index from last year's price index and dividing the difference by this year's price index.
D)last year's price index from this year's price index and dividing the difference by last year's price index.

Question 80

Between 1980 and 2000, the price level approximately doubled.The average annual rate of inflation over this 20-year period was about

A)5.5 percent.
B)4.7 percent.
C)3.5 percent.
D)2.8 percent.