Deck 11: Unemployment, Inflation, and Business Cycles

Question 1

The most widely used measure of a nation's output is

A) CPI
B) NNP
C) GNP
D) GDP
E) NI

Answer 1

GDP

Question 2

The Great Depression

A) was a prolonged economic recession.
B) lasted for two years in the 1940s.
C) was characterized by both high unemployment and high inflation.
D) caused national output to fall by 10 percent.
E) included all of these features.

Answer 2

was a prolonged economic recession.

Question 3

The four phases of a business cycle, in order, are

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

Answer 3

peak, contraction, trough, expansion.

Question 4

The period between a peak and a trough is known as a(n)

A) boom.
B) recovery.
C) expansion.
D) business cycle.
E) contraction.

Question 5

Which of the following would be considered a leading indicator?

A) Inflation rate for services
B) Personal income
C) Inventories-to-sales ratio
D) Labor costs per unit of output
E) Consumer expectations

Question 6

A business cycle refers to

A) fluctuations in the level of corporate profits.
B) seasonal unemployment patterns.
C) the ups and downs of real GDP.
D) changes in the long-term growth pattern of the CPI.
E) fluctuations in the general price level.

Question 7

Business cycles are

A) variations in the economy that are all equal in intensity.
B) seasonal variations in the economy that occur every year.
C) fluctuations in economic output that show a declining growth pattern over time.
D) periodic but irregular variations in economic activity.
E) exactly alike in the amount of time that passes from peak to peak.

Question 8

The part of a business cycle that follows a trough is the

A) contractionary phase of the cycle.
B) breakeven point of the cycle.
C) peak period of the cycle.
D) recessionary phase of the cycle.
E) expansionary phase of the cycle.

Question 9

The three types of indicators classified by the Department of Commerce are

A) leading, contractionist, and passed indicators.
B) leading, coincident, and lagging indicators.
C) primary, contractionist, and passed indicators.
D) optimal, contractionist, and passed indicators.
E) optimal, coincident, and lagging indicators.

Question 10

The longest period of increasing real GDP in the United States was:

A) in the 1960s.
B) in the 1970s.
C) in the 1980s.
D) in the 1990s.
E) in the 2000s.

Question 11

Figure 11.1

At point D in Figure 11.1, lagging economic indicators should show that real GDP

A) is expanding.
B) growth has reached a trough.
C) is contracting.
D) growth is zero.
E) growth will be positive over time.

Question 12

A recession is defined by ____ of falling real GDP.

A) 3 months
B) two consecutive quarters
C) three consecutive quarters
D) twelve months
E) no specific time period - the NBER business cycle dating committee determines the period of recession

Question 13

Figure 11.1

The movement from point A to point B in Figure 11.1 is most likely associated with

A) negative inflation rates.
B) an increase in aggregate demand for goods and services.
C) lagging economic productivity.
D) an increase in cyclical unemployment.
E) a downward trend in leading economic indicators.

Question 14

The most recent recession began in ____ and ended in ____.

A) July 1990; March 1991
B) July 1990; November 2001
C) March 2001; November 2001
D) December 2007; June 2009
E) December 2007; present (we are not yet out of the recessionary phase)

Question 15

In the business cycle, a trough marks the end of a(n) ____ and the beginning of a new ____.

A) contraction; expansion
B) peak; expansion
C) expansion; contraction
D) peak; contraction
E) expansion; peak

Question 16

Economists call a severe prolonged economic recession a

A) slump.
B) depression.
C) stagnation.
D) trend.
E) contraction.

Question 17

During the Great Depression in the 1930s, all of the following were characteristic of the economy except

A) about one in four workers was out of work.
B) a large number of firms had laid off workers or gone out of business.
C) consumer prices rose.
D) national output fell 25%.
E) none - all of these were characteristic of the economy during the Great Depression.

Question 18

Which of the following is inconsistent with long-run economic growth?

A) Recessionary phases
B) High inflation
C) Frictional unemployment
D) Decreased labor productivity
E) Technological changes

Question 19

At any time, job opportunities depend on all of the following except

A) the individual's ability.
B) the individual's experience.
C) the current state of the economy.
D) the individual's level of education.
E) all of these determine job opportunities.

Question 20

The two most important aspects of business cycles are changes in

A) business profits and the money supply.
B) unemployment and inflation.
C) monopolies and the international sector.
D) the price system and the foreign exchange market.
E) inflation and fiscal policy.

Question 21

The Bureau of Labor Statistics defines a person as unemployed if he or she does not

A) work full-time.
B) have a job but is actively seeking one.
C) earn a wage above the minimum wage rate.
D) earn enough income to be above the poverty level.
E) all of these are counted by the BLS as unemployed.

Question 22

Which of the following would be considered discouraged?

A) The 14-year-old child movie star as the child cannot work on long shoots.
B) The retired CEO who did a career change and is now a school teacher.
C) The former Enron VP who now works as a taxi driver.
D) The unemployed construction worker who gave up looking for work.
E) All of these are considered discouraged.

Question 23

Which of the following is not one of the four most common forms of unemployment defined by economists?

A) Seasonal unemployment
B) Static unemployment
C) Cyclical unemployment
D) Frictional unemployment
E) Structural unemployment

Question 24

Seasonal unemployment

A) causes the natural rate of unemployment to rise.
B) is reflected in the GDP gap.
C) is not reflected in official unemployment data.
D) inflates potential GDP.
E) is not considered a legitimate type of employment.

Question 25

A ____ indicator is a variable that changes ____ real output changes.

A) leading; before
B) leading; after
C) lagging; at the same time that
D) coincident; before
E) lagging; before

Question 26

Which of the following would be considered a lagging indicator?

A) Prime interest rate
B) Personal income
C) the money supply
D) Inventories to sales ratio
E) Payroll employment

Question 27

Which of the following would not be considered seasonally unemployed?

A) On December 26, the retired CEO who worked at the mall as Santa Claus
B) In May, the ski lift operator at the Park City Mountain Resort (Utah)
C) After the harvest has been picked, the farm worker
D) In October, the Skagway (Alaska, a popular stop for cruise ships) tour operator
E) All of these would be classified as seasonally unemployed.

Question 28

Which of the following would be considered a member of the U.S. labor force?

A) A 14-year-old boy who is a movie star
B) A carpenter who hasn't looked for work during the past year but continues to look for work
C) An engineer who has not looked for work during the past two months
D) An inmate in a state prison who makes license plates
E) All of these are members of the U.S. labor force.

Question 29

Which of the following would be considered underemployed?

A) The 14-year-old child movie star as the child cannot work on long shoots.
B) The retired school teacher who tutors a few hours a week.
C) The former Enron VP who now works as a taxi driver.
D) The homemaker who shops, cooks, does laundry, and cleans house.
E) All of these are considered underemployed.

Question 30

____ indicator(s) are used to identify the peaks and troughs in business cycles.

A) Leading
B) Coincident
C) Lagging
D) Leading and lagging
E) Leading, coincident, and lagging

Question 31

Including discouraged workers in the labor market statistics would

A) reduce the labor force and increase the unemployment rate.
B) increase the labor force and increase the unemployment rate.
C) increase the labor force and reduce the unemployment rate.
D) reduce the labor force and decrease the unemployment rate.
E) affect neither the size of the labor force nor the unemployment rate.

Question 32

Which of the following statements about seasonal unemployment is true?

A) It results primarily from downturns in economic activity.
B) It is likely to be associated with jobs that are affected by changes in the weather.
C) It is the type of unemployment associated with discouraged workers.
D) It is likely to be affected by changes in consumer preferences.
E) It is difficult to predict because it involves all kinds of workers.

Question 33

The underground economy

A) includes those who collect unemployment insurance but are working "under the table."
B) causes the official unemployment rate to be higher than the true unemployment rate.
C) includes those who would rather be on welfare than work.
D) is limited to people engaged in illegal drug trafficking and prostitution.
E) is all of these.

Question 34

Which of the following would not be considered in the underground economy?

A) The waiter who reports a small fraction of his actual tips.
B) The housecleaner who requests payment in cash.
C) The person who helps his neighbor build a fence, in return for the neighbor helping him paint his house.
D) The homemaker who shops, cooks, does laundry, and cleans house.
E) All of these are considered to be in the underground economy.

Question 35

The official unemployment rate is the number of unemployed people divided by the

A) number of employed people.
B) total size of the population.
C) size of the noninstitutionalized population.
D) size of the labor force.
E) size of the noninstitutionalized population, age 16 or older.

Question 36

Which of the following people is seasonally unemployed?

A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robot."
C) "I was laid off at the Ford plant because car sales are down in the recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."

Question 37

When interpreting government statistics, we must be careful and remember all of the following except:

A) Official unemployment data overestimate true unemployment.
B) When the underground economy grows more rapidly than the rest of the economy, the true rate of growth is higher than reported.
C) Official income statistics understate the true national income.
D) We will never know the true size of the underground economy.
E) None - all of these are true.

Question 38

In the official labor statistics, discouraged workers are

A) counted as employed.
B) counted as unemployed.
C) included in the labor force.
D) not included in the labor force.
E) counted as part of the labor force but not fully employed.

Question 39

If stock (market) prices are a leading indicator, then economic activity goes up

A) before stock prices increase.
B) at the same time that stock prices increase.
C) after stock prices increase.
D) before stock prices decrease.
E) after stock prices decrease.

Question 40

What is the main reason that economic indicators can be misleading?

A) All the indicators are difficult to measure.
B) Some economic variables are wrongly classified as coincident indicators.
C) The Department of Commerce never makes the indicators available to the public.
D) There is no discernible link between the indicators and real GDP changes.
E) The economic indicators often signal expansions or recessions that do not occur.

Question 41

Which of the following would tend to increase the natural rate of unemployment?

A) The creation of national unemployment offices to make information about job openings more accessible.
B) Recessionary downturns in the economy that result in massive layoffs of autoworkers.
C) Sociological changes that encourage people to seek employment.
D) The creation of government subsidies for workers who relocate to areas where new jobs can be found.
E) Less government money made available as unemployment compensation.

Question 42

There will be ____ pressure on wages and prices when the unemployment rate ____ the non-accelerating-inflation rate of unemployment (NAIRU).

A) a downward; fell below
B) a downward; rise above
C) an upward; fell below
D) an upward; rise above
E) no; fell below

Question 43

____ unemployment is short term; ____ unemployment can be long term.

A) seasonal; structural
B) cyclical; frictional
C) seasonal; cyclical
D) frictional; structural
E) structural; frictional

Question 44

Structural unemployment will decline if

A) more seasonal work becomes available.
B) the government increases taxes to support more welfare programs.
C) consumer spending on new technology decreases.
D) computerized job-search systems are improved.
E) retrained workers can move to areas where new jobs are available.

Question 45

Potential real GDP is the output level that

A) would be realized in the absence of structural unemployment.
B) would be realized in the absence of inefficient government programs.
C) is associated with the natural rate of unemployment.
D) is associated with full employment.
E) is associated with economic growth at 0 percent annual inflation.

Question 46

The natural rate of unemployment describes the labor market when the economy is producing what it realistically can produce in the absence of ____ unemployment.

A) seasonal
B) frictional
C) static
D) structural
E) cyclical

Question 47

Which of the following people is cyclically unemployed?

A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robot."
C) "I was laid off at the Ford plant because car sales are down in the recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."

Question 48

To avoid confusing ____ fluctuations in unemployment with other sources of unemployment, unemployment data are adjusted ____.

A) seasonal; seasonally
B) frictional; frictionally
C) structural; structurally
D) cyclical; cyclically
E) static; statically

Question 49

Potential real GDP minus actual real GDP

A) is the difference between the peak and the trough of a business cycle.
B) is the difference between real and nominal GDP.
C) measures the GDP gap.
D) measures the inflation rate.
E) measures the difference between the full employment rate and the natural rate of unemployment.

Question 50

Creative destruction results in ____ unemployment.

A) seasonal
B) frictional
C) static
D) structural
E) cyclical

Question 51

____ unemployment is/are always present in a dynamic economy.

A) Seasonal
B) Frictional
C) Structural
D) Frictional and structural
E) Seasonal, frictional, and structural

Question 52

Which of the following is false regarding the value of the natural rate of unemployment in the United States?

A) In the 1950s and 1960s, economists generally agreed on 4%.
B) In the 1970s, economists generally agreed on 5%.
C) In the early 1980s, economists generally agreed on 6% - 7%.
D) In the late 1980s, some economists placed the rate back at 5%.
E) None - all of these are true.

Question 53

The natural rate of unemployment is the unemployment rate that would exist in the absence of

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

Question 54

As more people begin to look for jobs, ____ unemployment ____, ____ the natural rate of unemployment.

A) frictional; increases; raising
B) frictional; decreases; raising
C) frictional; increases; decreasing
D) structural; increases; raising
E) cyclical; decreases; decreasing

Question 55

Which of the following people is structurally unemployed?

A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robot."
C) "I was laid off at the Ford plant because car sales are down in the recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."

Question 56

Which type of unemployment arises as one of the worst effects of a recession?

A) Seasonal unemployment
B) Static unemployment
C) Cyclical unemployment
D) Frictional unemployment
E) Structural unemployment

Question 57

Frictional unemployment most likely arises due to

A) conflicts between union and labor.
B) a labor force where people elect to change jobs.
C) business cycles.
D) technological changes.
E) seasonal adjustments in demand.

Question 58

The natural rate of unemployment will always be greater than zero because of

A) frictional unemployment.
B) cyclical unemployment.
C) the presence of recessions.
D) involuntary unemployment.
E) limited growth opportunities of the economy.

Question 59

Which of the following people is frictionally unemployed?

A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robot."
C) "I was laid off at the Ford plant because car sales are down in the recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."

Question 60

The GDP gap ____ during recessions and ____ during expansions.

A) narrows; widens
B) narrows; narrows
C) widens; widens
D) widens; narrows
E) sometimes widens and sometimes narrows; sometimes widens and sometimes narrows

Question 61

The purchasing power of money

A) increases as the level of relative prices increases.
B) has been rising in the United States since the 1940s.
C) is the nominal value of money.
D) is the nominal value of income.
E) is the value of goods and services that can be bought with a dollar.

Question 62

The entry of women into the workplace has

A) eliminated job discrimination against women.
B) caused the labor force to increase in number.
C) caused natural unemployment to fall.
D) closed the GDP gap.
E) reduced the extent of cyclical unemployment.

Question 63

Refer to Table 11.2. By how much (rounded to the first decimal place) did consumer prices rise between 1988 and 1992?

A) 5.5 percent
B) 10.5 percent
C) 13.1 percent
D) 14.5 percent
E) None of these numbers are correct

Question 64

In Table 11.3, what was the purchasing power of the dollar in 2005 relative to the base year 2002 (rounded to two decimal places)?

A) $.09
B) $.91
C) $.93
D) $1.09
E) None of these numbers is correct.

Question 65

Which of the following statements regarding U.S. unemployment rates between 1951 and 2009 is false?

A) In most years, the unemployment rate for women is higher than it is for men.
B) The unemployment rate for all workers reached a low of 2.8 percent in 1953.
C) The unemployment rate for all workers reached a high of 10.1 percent in October 2009.
D) Whites have lower unemployment rates than do nonwhites.
E) Teenagers have the lowest unemployment rates in the country.

Question 66

Countries define unemployment differently and use different methods to count the unemployed. This is evidenced in all of the following except:

A) In some countries, only those people who register for unemployment benefits are considered unemployed, so those who have not registered are excluded.
B) Some countries conduct monthly surveys of households to estimate the unemployment rate, instead of relying on an unemployment register.
C) Official Italian unemployment data include people who have not looked for work in the past 30 days, resulting in a rate that is twice as high than if those were excluded.
D) Through the 1960s and early 1970s, European unemployment rates generally were lower than U.S. and Canadian rates, but in the mid-1980s the U.S. unemployment began to fall and the European unemployment remained high.
E) The Organization for Economic Cooperation and Development found that only 80% - 85% of those surveyed as unemployed were registered in Germany, France, and the United Kingdom.

Question 67

Which of the following is false with respect to Table 11.1?

A) The relative price of shoes in terms of jeans was 1.5 in 2005.
B) The absolute price of shoes rose from 2005 to 2006.
C) The relative price of shoes rose from 2005 to 2006.
D) The relative price of shoes in terms of jeans was ? in 2005.
E) The absolute price of jeans rose from 2005 to 2006.

Question 68

What is the main problem with national unemployment registers?

A) They include people who are still working full-time.
B) They include people who are not entitled to unemployment benefits.
C) They include people who may not be interested in seeking new employment.
D) They overestimate the actual amount of unemployment.
E) They are biased toward white-collar unemployment.

Question 69

Inflation is defined as

A) any increase in the general price level.
B) a sustained increase in the average level of prices.
C) a sustained increase in relative prices.
D) an increase in the prices of specific products.
E) a sudden increase in the weighted average of all prices.

Question 70

Refer to Table 11.2. If a pair of shoes and a shirt cost $100 in 1990, what did they cost (rounded to the first decimal place) in 1992 based on the inflation rate?

A) $105.5
B) $106.5
C) $118.5
D) $125.0
E) None of these numbers are correct

Question 71

Refer to Table 11.3. Between 2003 and 2004, the annual inflation rate was

A) 2.4 percent.
B) 2.5 percent.
C) 2.7 percent.
D) 6.4 percent.
E) None of these numbers is correct.

Question 72

If the price level for a given year was 1.333, then the real value of $1 would be

A) $1.33.
B) $1.00.
C) $.90.
D) $.75.
E) $.33.

Question 73

Differences in unemployment rates between countries can be explained by all of the following except:

A) in Italy, laws require parents to support their adult children who do not work, even if the children are entirely capable of working.
B) restrictions on the ability of firms to terminate workers.
C) the requirement that firms pay high separation costs to workers who are fired.
D) the depreciation/appreciation of foreign exchange between countries
E) government policy with regard to the labor market.

Question 74

In Table 11.1, what was the inflation rate between 2005 and 2006?

A) 10 percent
B) 20 percent
C) 66 percent
D) 83 percent
E) 100 percent

Question 75

The GDP gap ____ around ____.

A) narrows; recessions
B) narrows; the trough
C) widens; expansions
D) widens; recessions
E) None of these as there is no general trend between the GDP gap and the business cycle.

Question 76

The purchasing power of the dollar is equal to

A) real GDP divided by nominal GDP.
B) nominal GDP divided by real GDP.
C) 1 minus the average price level.
D) the reciprocal of the average price level.
E) the average price level multiplied by 100.

Question 77

During periods of inflation,

A) everyone's real income falls.
B) those people who have fixed incomes benefit.
C) those people whose real income rises faster than the general price level benefit.
D) those people who enter long-term wage agreements benefit.
E) those people who hold a lot of cash benefit.

Question 78

While Japanese unemployment rates were much lower than U.S. and Canadian rates in the 1960s through the 1990s, by 2000 ____ led to rising unemployment in Japan.

A) the devastating earthquake near the east coast of Honshu Japan
B) a prolonged economic slowdown in Japan
C) the success of Chinese manufacturing
D) the recession in the United States
E) a change in how the unemployment are counted

Question 79

If the average price level was 0.44 in 1980, then the purchasing power of one dollar in that year relative to the 1995 base year was

A) $4.40.
B) $2.27.
C) $.56.
D) $.44.
E) None of these numbers is correct.

Question 80

Refer to Table 11.3. How many times more goods and services could be purchased with 1 dollar in 2002 compared to what 1 dollar could buy in 2005?

A) 1.064
B) 1.07
C) 1.093
D) 1.93
E) 1.96