Deck 11: Business Cycles, Unemployment, and Inflation

Question 1

What has been the range of the decline in real output for U.S. recessions since 1950?

A) -0.1 percent to -4.9 percent
B) -5.0 percent to -9.9 percent
C) -10.0 percent to -14.9 percent
D) -15.0 percent to -19.9 percent

Answer 1

-0.1 percent to -4.9 percent

Question 2

The level of total spending is the immediate determinant of the:

A) ratio of private to public goods production.
B) level of real output and employment.
C) size of the labor force.
D) inflation rate.

Answer 2

level of real output and employment.

Question 3

Which statement is correct?

A) During a recession spending on capital goods increases.
B) Real output and employment usually show little variance over the business cycle.
C) The production of nondurable consumer goods is more stable than the production of durable consumer goods over the business cycle.
D) Recessions have not been severe because economists and statisticians have been able to predict their occurrence and intensity with high accuracy.

Answer 3

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

Question 4

Which of the following is the best example of a supply shock?

A) Planned improvements in energy production facilities.
B) Reductions in consumption spending triggered by a stock market crash.
C) The introduction of new innovations in production.
D) Increased government spending on education.

Question 5

Which of the following is the best example of an event that would cause a demand shock?

A) Unexpected changes in technology that alter production costs.
B) Productivity changes.
C) Unexpected changes in financial asset prices.
D) Natural disasters that destroy oil refineries.

Question 6

Shocks to the economy:

A) refer to any economic events that change the level of output.
B) are unexpected changes in aggregate demand or aggregate supply.
C) only occur on the demand side.
D) only occur on the supply side.

Question 7

Shocks to the economy often result in calls for government action to correct the imbalances these shocks create. Why don't markets tend to correct these imbalances quickly by themselves?

A) Prices adjust too quickly for markets to correct imbalances.
B) Government policy is the primary cause of shocks, so government policy is the only way to correct the imbalances they create.
C) Buyers and sellers in markets don't react rationally when shocks occur.
D) Product prices are often "sticky" or inflexible, keeping markets from correcting imbalances quickly.

Question 8

Indy worked for a major automobile manufacturer before the company relocated its factory to Malaysia, putting Indy out of a job. Indy continues to seek new employment, but will likely have to retrain or relocate to find a job. Based on this description, Indy is best described as:

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

Question 9

Balin recently lost his job as a dog trainer because of a recession. He is seeking a new job, but his prospects appear dim until the economy recovers. Based on this description, Balin is best described as:

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

Question 10

Alyssa lost her job six years ago because of a recession. She continues to seek new employment and many people have returned to that industry as the economy has recovered, but because of her extended bout of unemployment, her workplace skills have deteriorated and she is unable to secure a job or even get interviews. In her current situation, Alyssa is best described as:

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

Question 11

Rosa recently completed her college degree and is looking for her first job. She has had a few interviews and prospects look good for her to land a new job in the next couple of weeks. Based on this description, Rosa is best described as:

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

Question 12

Parker recently quit his job to find one that pays better and better fits his skills. He has had multiple interviews and anticipates securing a new position soon. Based on this description, Parker is best described as:

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

Question 13

Tony left his job three months ago to go back to school full time. He will complete his degree in about three years and then seek a new job. Based on this description, Tony is best described as:

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

Question 14

Which is a correct statement?

A) Frictional unemployment is the result of frictions between labor and management over how best to perform work.
B) Structural unemployment results from changes in the structure of consumer demand or technology.
C) Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle.
D) Search unemployment is the broadest unemployment category because it covers all other types of unemployment.

Question 15

A headline reads: "Economy Still in Recession." The type of unemployment most closely associated with this economic condition would be:

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

Question 16

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
1) Mollie just graduated from college 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 defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4) Ricardo 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) 1
B) 2
C) 3
D) 4

Question 17

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
1) Mollie just graduated from college 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 defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4) Ricardo 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 18

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
1) Mollie just graduated from college 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 defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4) Ricardo 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 19

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
1) Mollie just graduated from college 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 defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4) Ricardo 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 not in the labor force?

A) None of these individuals are in the labor force.
B) 2 only.
C) 3 only.
D) 4 only.

Question 20

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
1) Mollie just graduated from college 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 defense spending. She has been looking for similar work for a year, but no company seems interested in her aircraft design skills.
4) Ricardo 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(s) 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 21

The unemployment rate that would be consistent with full employment is:

A) equal to the cyclical unemployment rate.
B) equal to zero.
C) equal to the total of frictional and structural unemployment.
D) a fixed unemployment rate that does not change over time.

Question 22

If the Consumer Price Index falls from one year to the next, we can most conclusively say that the economy has experienced:

A) deflation.
B) disinflation.
C) inflation.
D) hyperinflation.

Question 23

If the average level of nominal income in a nation is $45,000 and the price level index is 180, the average real income would be about:

A) $15,000.
B) $20,000.
C) $25,000.
D) $30,000.

Question 24

The percentage change in one's real income can be approximated by:

A) dividing real income by the price level, expressed as an index number.
B) dividing the price level, expressed as an index number, by nominal income.
C) the percentage change in price level minus the percentage change in nominal income.
D) the percentage change in nominal income minus the percentage change in the price level.

Question 25

Periods of extreme hyperinflation are the result of:

A) stock market price bubbles.
B) oil price shocks.
C) severe recessions.
D) excessive monetary expansions by government.

Question 26

Economists fear deflation because:

A) falling prices make firms more susceptible to bankruptcy.
B) consumers anticipating further price declines will delay purchases.
C) falling revenue increases the likelihood that workers will be laid off.
D) of all these reasons.

Question 27

Deflation during a recession is of concern to economists because:

A) falling prices lead consumers to delay purchases and further reduce spending.
B) workers will demand wage increases to offset the effects of deflation.
C) the government is powerless to stop it.
D) it is generally followed by periods of hyperinflation.

Question 28

The practice of clipping coins by feudal lords was a subtle form of:

A) specialization.
B) investment.
C) taxation.
D) barter.

Question 29

Clipping coins created inflation because:

A) it decreased the stock of capital goods.
B) it increased the stock of capital goods.
C) it decreased the money supply.
D) it increased the money supply.

Question 30

The economy is considered to be at its potential output when the only unemployment is structural or frictional.

Question 31

From 2001 to 2015, the U.S. economy experienced three recessions.

Question 32

During recent years the U.S. unemployment rate has been substantially higher than the rate in most of the other major industrial nations.

Question 33

The business cycle is best defined as alternating periods of increases and decreases in the level of economic activity.

Question 34

The unemployment rate is equal to the number of people who are unemployed divided by the number of people in the labor force.

Question 35

The economy's GDP gap is negative when actual GDP is greater than potential GDP.

Question 36

The unemployment rate for managerial and professional workers tends to be high.

Question 37

From one year to the next, the Consumer Price Index rose from 140.3 to 144.5. The rate of inflation was therefore 7.1 percent.

Question 38

The nominal interest rate is the sum of the real interest rate and the premium paid to the lender to offset the expected rate of inflation.

Question 39

Deflation is a decline in the price level.

Question 40

Hyperinflation may stimulate significant increases in real output in an economy.