Deck 10: Business Cycles, unemployment and Inflation

Question 1

Potential GDP is the output of the economy along a smooth path of growth,without strains on production or unused resources.

Answer 1

True
Explanation: Potential GDP is the output of an economy, assuming no strains on production or unused resources.

Question 2

A(n)_________ is defined as a significant decline in economic activity spread across the economy,lasting more than a few months.

A) recession
B) depression
C) economic deficit
D) regressive economy

Answer 2

A
Explanation: A recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months.

Question 3

An important cause of recessions is an unexpected negative supply shift,such as higher oil prices.

Answer 3

True
Explanation: A significant cause of recessions is an unexpected negative supply shift, which moves the supply curve to the left for a broad array of markets. The classic example of such a negative shock is a sudden rise in the price of oil.

Question 4

_________ are organized groups of workers that bargain collectively with employers.

A) Unions
B) Student councils
C) Aggregated labor groups
D) Amalgamations

Question 5

The expansion is the period of time after the peak in business cycles.

Question 6

The pattern of recession,recovery,and expansion is called the business cycle.

Question 7

Generally,in a recession,more homes are built.

Question 8

Cyclical unemployment happens because

A) businesses make strategic errors.
B) of government intervention
C) inflation rates vary.
D) of the ups and downs of the business cycle.

Question 9

What does the phrase "wages are sticky" mean?

A) Wages never change.
B) It is difficult to change wages in the short term.
C) Wages are always changing.
D) Wages stick to unemployment rates.

Question 10

During a recession,business profits decline.

Question 11

With a recession under way,consumers have less money,causing a demand shift to the right.

Question 12

The National Bureau of Economic Research decides the official start and end dates for a recession.

Question 13

The NAIRU is short for the nonaccelerating inflation rate of unemployment.

Question 14

Recessions are always caused by negative demand shifts.

Question 15

The unemployment rate is calculated as

A) the rate of inflation minus the rate of employment.
B) total productivity divided by frictional unemployment.
C) the percentage of the labor force that is unemployed.
D) structural unemployment divided by GDP.

Question 16

Frictional unemployment occurs when

A) employees file grievances and are fired.
B) workers take time off to care for parents or children.
C) workers experience temporary unemployment as they move from one job into another.
D) workers go back to school.

Question 17

Structural unemployment exists when

A) the construction industry lays workers off.
B) there is a mismatch between the skills of unemployed workers and the needs of employers of unfilled jobs.
C) the government decides who is unemployed.
D) there are too few workers to fill available jobs.

Question 18

The underemployed are those people who are

A) working at a lower skill level so they can earn money while looking for a better job.
B) working full-time but want to work only part-time.
C) not looking for work actively enough to be considered unemployed.
D) unemployed due to the ups and downs of the business cycle.

Question 19

The unemployment rate includes

A) people not working because they are in school.
B) people who have given up looking for work.
C) people who are not working in order to stay at home with children.
D) people who are unemployed but actively seeking work.

Question 20

The natural rate of unemployment is

A) 5%.
B) dependent on the business cycle.
C) determined by the Bureau of Labor Statistics.
D) the level where inflation is more or less stable.

Question 21

The rate at which potential GDP rises is called the

A) GDP peak rate.
B) natural growth rate.
C) real growth rate.
D) potential growth rate.

Question 22

Which of the following is the formula for the potential growth rate?

A) The potential growth rate equals the long-term labor force growth rate plus the long-term productivity growth rate.
B) The potential growth rate equals the short-term growth rate plus the long-term aggregate productivity growth rate.
C) The potential growth rate equals the short-term growth rate plus the long-term productivity growth rate.
D) The potential growth rate equals the short-term aggregate growth rate minus the long-term productivity growth rate.

Question 23

The difference between actual and potential GDP is called

A) a gap shortage.
B) an output gap.
C) the output resistance.
D) the output decline.

Question 24

Problems in _____________ are another possible cause of recessions.

A) agricultural markets
B) financial markets
C) aggregate inputs
D) intermediate input markets

Question 25

When unemployment is above the natural rate,

A) Inflation rises.
B) Nominal wages decrease.
C) Wage-price spirals occur.
D) The inflation rate falls.

Question 26

___________ policies of the government can also cause recessions.

A) Inflation-fighting
B) Welfare
C) Defense
D) Poor market-based

Question 27

Negative demand shifts can

A) be defined as an increase in demand without an increase in supply.
B) lead to a decrease in supply.
C) cause a recession.
D) be caused by falling aggregate production.

Question 28

The pattern of recession,recovery,and expansion is known as the

A) economic cycle.
B) inflationary cycle.
C) deflationary cycle.
D) business cycle.

Question 29

Negative supply shifts may lead to

A) excess deflation.
B) economic growth.
C) recessions.
D) excess supply.

Question 30

An example of a generally recession-resistant business is

A) consumer electronics.
B) health care.
C) automobiles.
D) boats.

Question 31

When the economy is operating at potential GDP,the rate of inflation is

A) rising.
B) neither rising nor falling.
C) falling.
D) causing aggregate demand to fall while supply rises.

Question 32

If the NAIRU was 4.8% in 2002 and the actual unemployment rate was 5.8%,what percentage of the labor force could have been put to work without exerting upward pressure on inflation?

A) 1%.
B) 10.6%.
C) 1.2%.
D) 5.3%.

Question 33

The potential growth rate is sometimes also called the

A) breaking point.
B) speed limit.
C) stop point.
D) peak.

Question 34

The ________ is the beginning of a recession.

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

Question 35

When unemployment is below the natural rate,

A) inflation slows.
B) the inflation rate increases.
C) frictional unemployment increases.
D) structural unemployment declines.

Question 36

The NAIRU is a key indicator of how

A) Unemployment trends may occur.
B) Much the economy can slow down without a recession.
C) Much faster the economy can grow without pushing up inflation.
D) Structural unemployment is declining.

Question 37

The date a recession bottoms out is called the

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

Question 38

The ___________ is the period of time from the trough,through recovery,and all the way back to peak.

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

Question 39

In a recession,demand for cars falls,and the demand curve in the market for cars

A) shifts to the right.
B) remains unchanged.
C) shifts to the left.
D) slows down.

Question 40

If the long-term labor force growth rate is 1.2% and the long-term productivity growth rate is 2.4%,then the

A) potential growth rate is 3.6%.
B) short-term growth rate is 1.2%.
C) spending multiplier is 2.
D) real GDP per capita growth rate is 0.5%.

Question 41

Which of the following is a reason that wages are sometimes "sticky"?

A) Technological changes.
B) Labor market friction.
C) Structural unemployment.
D) Contractual wage agreements of unions.

Question 42

What is one potential effect of very high GDP and very low unemployment?

A) A recession.
B) Inflation.
C) Hypoinflation.
D) Falling interest rates.

Question 43

Which of the following is an example of cyclical unemployment?

A) A fast-food worker quits that job to find a better-paying job.
B) An autoworker is laid off when auto sales fall due to a recession.
C) A student goes to school instead of working.
D) A worker stays at home to care for a child.

Question 44

If the average price level is rising,then we know that

A) the unemployment rate must be below the NAIRU.
B) real GDP is above potential GDP.
C) the natural rate of unemployment is below the actual rate of unemployment.
D) any of these answer choices could be true.

Question 45

Who would NOT be counted among the unemployed?

A) A fast-food worker laid off due to lack of work.
B) A factory worker fired due to incompetence.
C) A full-time student taking classes.
D) A stay-at-home parent who reentered the workforce and was subsequently laid off.

Question 46

If GDP is too low relative to potential GDP,which of the following is true?

A) Inflation is higher than normal.
B) A recession has just begun.
C) Deflation will occur.
D) Unemployment is higher than normal.

Question 47

When real GDP is lower than potential GDP,the output gap is

A) zero.
B) inflationary.
C) negative.
D) Deflationary.

Question 48

If GDP is too high relative to potential GDP,which of the following happens?

A) Inflation rises.
B) A recession begins.
C) Deflation occurs.
D) Unemployment rises.

Question 49

When actual GDP goes below potential GDP,it means that

A) Economic activity has increased.
B) Inflation is imminent.
C) Economic activity has slowed.
D) Deflation is imminent.

Question 50

Which person provides an example of structural unemployment?

A) A worker who stays at home to tend to children.
B) A worker trained in running an obsolete machine.
C) A student who goes to school instead of working.
D) A fast-food worker who quits that job to find a better-paying job.

Question 51

The periods of temporary unemployment that correspond to short gaps between jobs create

A) Frictional unemployment.
B) Cyclical unemployment.
C) Per capita unemployment.
D) Superficial unemployment.

Question 52

How are potential GDP and real GDP alike?

A) They are two different terms for the same thing.
B) They are both adjusted for inflation.
C) They are both influenced by changes in the price level.
D) They both increase when the output gap is positive.

Question 53

Potential GDP is the maximum amount of economic output an economy can sustain at any moment without

A) causing frictional unemployment.
B) raising unemployment levels.
C) decreasing the inflation rate.
D) increasing the inflation rate.

Question 54

If there is a mismatch between the skills of unemployed workers and the needs of employers,economists say that there is

A) frictional unemployment.
B) cyclical unemployment.
C) per capita unemployment.
D) structural unemployment.

Question 55

How can fighting inflation cause a recession?

A) The Federal Reserve raises interest rates to intentionally slow down the economy.
B) Businesses lay off workers as a way to keep prices from rising too fast.
C) The federal government orders businesses to reduce prices, which raises interest rates.
D) Households stop buying goods and services in response to higher prices.

Question 56

Which of the following is an example of frictional unemployment?

A) A student goes to school instead of working.
B) A worker leaves one job and is temporarily unemployed before starting a new one.
C) A worker can't find a job because she is trained in running an obsolete machine.
D) A worker stays at home to tend to children.

Question 57

The effects of a recession on auto companies are that ________ cars are demanded and prices generally __________.

A) fewer; fall
B) fewer; rise
C) more; fall
D) more; rise

Question 58

The Congressional Budget Office estimated that the NAIRU was equal to about __________ in 2008.

A) 9.6%
B) 6.0%
C) 4.8%
D) 4.0%

Question 59

When there is a negative output gap,the unemployment rate

A) rises.
B) remains steady.
C) is also negative.
D) is less reliable.

Question 60

As the economy slows in a recession,the __________ schedules of most businesses shift to the __________.

A) supply; left
B) supply; right
C) demand; left
D) demand; right

Question 61

What is the definition of the output gap?

Question 62

How is it possible for output to be greater than potential GDP?

Question 63

Since the 1970s,the most common causes of recessions have been

A) negative supply shifts and negative demand shifts.
B) negative supply shifts and inflation fighting.
C) problems in financial markets and inflation fighting.
D) problems in financial markets and negative demand shifts.

Question 64

What will happen in an economy if the actual GDP is too high relative to the potential GDP?

Question 65

What is the definition of the natural rate of unemployment?

Question 66

What are the definition and purpose of potential GDP?