Deck 10: Short-Term Economic Fluctuations and Fiscal Policy

Question 1

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.

Answer 1

expansion.

Question 2

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

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

Answer 2

1929.

Question 3

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.

Answer 3

a particularly severe and protracted recession.

Question 4

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. The economy experienced a recession that lasted from:

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 5

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. Which of the following periods was an expansion?

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 6

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 7

The end of a recession is called the:

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

Question 8

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 9

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. The economy experienced an expansion that lasted from:

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 10

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 11

The beginning of a recession is called the:

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

Question 12

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 13

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 14

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 15

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. Which of the turning points are troughs?

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

Question 16

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

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

Question 17

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. Which of the turning points are peaks?

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

Question 18

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

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

Question 19

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 20

The duration of a recession is measured from:

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

Question 21

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 22

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 23

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 24

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

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

Question 25

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 26

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

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

Question 27

Falling growth rates during the 2007-2009 recession occurred:

A) only in the high-tech sectors of the U.S. economy.
B) only in the United States.
C) in the United States, Canada, Germany, the United Kingdom, and Japan.
D) in the United States and Canada, but not in Germany, the United Kingdom, or Japan.

Question 28

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 29

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 30

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 31

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 32

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

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

Question 33

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 34

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

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

Question 35

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

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

Question 36

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 37

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 38

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

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

Question 39

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 40

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 41

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 42

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 43

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 44

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 45

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 46

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 47

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

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

Question 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

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 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

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 61

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 62

If the natural rate of unemployment equals 8 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

A) 10 percent.
B) 2 percent.
C) -2 percent.
D) -1 percent.

Question 63

If the output gap equals 180 billion, 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 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

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 66

The natural unemployment rate is equivalent to all of the following EXCEPT the unemployment rate when:

A) cyclical unemployment is zero.
B) there is only frictional and structural unemployment.
C) there is no output gap.
D) the unemployment rate is zero.

Question 67

Wasted capital and labor resources are a problem associated with a(n) _____ gap. Increased inflation is a problem associated with a(n) _____ gap.

A) recessionary; expansionary
B) recessionary; recessionary
C) expansionary; expansionary
D) expansionary; recessionary

Question 68

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 69

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 70

The cyclical unemployment rate is positive when

A) there is a recessionary gap.
B) there is an expansionary gap.
C) the output gap equals zero.
D) frictional unemployment equals structural unemployment.

Question 71

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 72

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 73

If the output gap equals -200 billion, 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 74

If potential output equals $5 billion and actual output equals $6.5 billion, then this economy has a(n):

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

Question 75

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 76

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

A) expansionary
B) potential
C) no
D) recessionary

Question 77

If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

A) -2 percent.
B) 2 percent.
C) -1 percent.
D) 10 percent.

Question 78

In Macroland potential GDP equals $20 billion and real GDP equals $20.8 billion. Macroland has a(n) ______ gap.

A) expansionary
B) potential
C) no
D) recessionary

Question 79

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 80

If potential output for an economy equals $5 billion, and actual output equals $4.5 billion, then this economy has a(n):

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