Deck 10: Money, Prices, and the Federal Reserve

Question 1

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: $$\begin{array} { c c c } \text { Turning Point } & \text { Date } & \text { Real GDP } \\& & \text { (1996 \$ billions) } \\\text { (A) } & \text { Feb. } 1961 & 2352.9 \\\text { (B) } & \text { Dec. } 1969 & 3571.4 \\\text { (C) } & \text { Nov. } 1970 & 3566.5 \\\text { (D) } & \text { Nov. } 1973 & 4151.1 \\\text { (E) } & \text { Mar. } 1975 & 4010.0\end{array}$$ Which of the following periods was an expansion?

A) February 1961 through December 1969
B) December 1969 through November 1970
C) November 1970 through March 1975
D) December 1969 through November 1973

Answer 1

February 1961 through December 1969

Question 2

The beginning of a recession is called the:

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

Answer 2

C

Question 3

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. $$\begin{array} { c c c } \text { Turning Point } & \text { Date } & \begin{array} { c } \text { Real GDP } \\\text { (1996 \$ billions) }\end{array} \\\text { (A) } & \text { July } 1953 & 1992.2 \\\text { (B) } & \text { May } 1954 & 1941.0 \\\text { (C) } & \text { Apr. } 1957 & 2182.7 \\\text { (D) } & \text { Apr. } 1958 & 2117.4 \\\text { (E) } & \text { Apr. } 1960 & 2391.0\end{array}$$ 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)

Answer 3

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

Question 4

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 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 5

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 6

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 7

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

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

Question 8

The end of a recession is called the:

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

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. $$\begin{array} { c c c } \text { Turning Point } & \text { Date } & \begin{array} { c } \text { Real GDP } \\\text { (1996 \$ billions) }\end{array} \\\text { (A) } & \text { July } 1953 & 1992.2 \\\text { (B) } & \text { May } 1954 & 1941.0 \\\text { (C) } & \text { Apr. } 1957 & 2182.7 \\\text { (D) } & \text { Apr. } 1958 & 2117.4 \\\text { (E) } & \text { Apr. } 1960 & 2391.0\end{array}$$ Which of the following periods was a recession?

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

Question 10

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) about the same duration as expansions.
D) shorter than the duration of expansions before World War II, but longer afterwards.

Question 11

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 12

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. $$\begin{array} { c c c } \text { Turning Point } & \text { Date } & \begin{array} { c } \text { Real GDP } \\\text { (1996 \$ billions) }\end{array} \\\text { (A) } & \text { July } 1953 & 1992.2 \\\text { (B) } & \text { May } 1954 & 1941.0 \\\text { (C) } & \text { Apr. } 1957 & 2182.7 \\\text { (D) } & \text { Apr. } 1958 & 2117.4 \\\text { (E) } & \text { Apr. } 1960 & 2391.0\end{array}$$ Which of the following periods was an expansion?

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

Question 13

During recessions, the change in real GDP is:

A) always positive.
B) always negative.
C) usually positive, but can be negative.
D) usually negative, but can be positive.

Question 14

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. $$\begin{array} { c c c } \text { Turning Point } & \text { Date } & \begin{array} { c } \text { Real GDP } \\\text { (1996 \$ billions) }\end{array} \\\text { (A) } & \text { July } 1953 & 1992.2 \\\text { (B) } & \text { May } 1954 & 1941.0 \\\text { (C) } & \text { Apr. } 1957 & 2182.7 \\\text { (D) } & \text { Apr. } 1958 & 2117.4 \\\text { (E) } & \text { Apr. } 1960 & 2391.0\end{array}$$ 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 15

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

A) 2
B) 4
C) 6
D) 8

Question 16

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 low point of economic activity prior to a recovery.
D) a particularly strong and protracted expansion.

Question 17

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

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

Question 18

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 19

The duration of a recession is from:

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

Question 20

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 21

All of the following are characteristics of short-term economic fluctuations EXCEPT:

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) unemployment rises during recessions.
D) durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

Question 22

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 23

Typically unemployment ______ during a recession and ______ during an expansion.

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

Question 24

The duration of an expansion is from:

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

Question 25

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

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

Question 26

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) the highest inflation rate; the lowest inflation rate

Question 27

All of the following are characteristics of short-term economic fluctuations EXCEPT:

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

Question 28

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

A) 10 years.
B) 24 months.
C) 43 months.
D) 5 years.

Question 29

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

A) 10 years.
B) 24 months.
C) 43 months.
D) 5 years.

Question 30

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 31

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

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

Question 32

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

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

Question 33

Recession 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 34

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 35

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 36

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

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

Question 37

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 38

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 39

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 40

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 41

A recession occurs when either ______ or _______, or both.

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 42

An expansion occurs when either ______ or _______, or both.

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 rapidly; actual output falls below potential output

Question 43

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

A) followed; an increase
B) followed; a decline
C) preceded; a decline
D) preceded immediately; a stabilization

Question 44

If potential output equals $8 billion and actual output equals $10 billion, then this economy has an output gap equal to:

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

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

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 47

Potential output is:

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

Question 48

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 49

A country's actual output ______ potential output.

A) can never exceed
B) can never be below
C) can temporarily exceed
D) will always be approximately equal to

Question 50

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 51

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 52

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

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

Question 53

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 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

For policymakers the problem with a recessionary gap is ______ and the problem with an expansionary gap is _____.

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

Question 56

If potential output 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 57

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

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

Question 58

Recessionary gaps are:

A) efficient.
B) inefficient.
C) periods when actual output exceeds potential output.
D) the result a decrease in the growth rate of potential output.

Question 59

If actual output equals potential output, but potential is growing unusually slowly, then an economy:

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

Question 60

If potential output equals $8 billion and actual output equals $7 billion, then this economy has an output gap equal to:

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

Question 61

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 no cyclical unemployment.
D) potential GDP is less than actual GDP.

Question 62

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) 3 percent.
D) 11 percent.

Question 63

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 64

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 65

Compared to older workers, younger workers change jobs more frequently, so they are more prone to ______ unemployment and have fewer skills, so they are more prone to ______ unemployment.

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

Question 66

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

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

Question 67

The changing age structure of the U.S. 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 68

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

A) less than
B) approximately equal to
C) greater than
D) more predictable than

Question 69

Okun's law expresses the relationship between:

A) unemployment and inflation.
B) frictional unemployment and structural unemployment.
C) money and velocity.
D) cyclical unemployment and the output gap.

Question 70

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

A) 1%.
B) 5%.
C) 6%.
D) 7%.

Question 71

Two possible explanations for the decline in the natural rate of unemployment in the United States over the past twenty years are:

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.

Question 72

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

A) 6%.
B) 1%.
C) 3%.
D) 5%.

Question 73

The increasing availability of temporary job placement agencies and online job services has ______ the efficiency of matching workers and jobs and ______ the natural rate of unemployment in the United States.

A) increased; increased
B) increased; reduced
C) had no impact on; reduced
D) decreased; increased

Question 74

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 greater than actual GDP.

Question 75

The aging of the labor force in the U.S. 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 76

In a recession, the cyclical rate of unemployment:

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

Question 77

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

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

Question 78

According to the Congressional Budget Office, over the past twenty years, the natural rate of unemployment in the United States has:

A) increased.
B) remained constant.
C) fallen.
D) fallen to zero, and is now becoming negative.

Question 79

The cyclical unemployment rate is zero when:

A) there is not a recessionary gap.
B) there is not an expansionary gap.
C) actual GDP and potential GDP are equal.
D) frictional unemployment equals structural unemployment.

Question 80

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) 3 percent
C) 1 percent
D) 0.3 percent