Question 1

When real GDP equals potential GDP, cyclical unemployment is zero.

Accepted Answer

When real GDP equals potential GDP, it means that the economy is operating at full employment level, meaning that there is no cyclical unemployment.

Question 2

Real GDP can never be greater than potential GDP.

Accepted Answer

Real GDP can exceed potential GDP during periods of economic boom, but over the long run, potential GDP represents the maximum sustainable level of output that an economy can produce.

Question 3

All economists agree that the natural rate of unemployment is a constant number somewhere between 4 percent and 9 percent.

Accepted Answer

Not all economists agree on the exact number or even the concept of a "natural rate" of unemployment. There is ongoing debate and differing opinions within the field.

Question 4

When the price level rises by 5 percent, products that cost $20 last year now cost

Accepted Answer

If the price level rises by 5 percent, the cost of a product increases by 5 percent. So, a product that cost $20 last year would increase in price by 5% of $20, which is $1. Therefore, the new cost would be $20 + $1 = $21.

Question 5

Commercial fishers who live in areas without fish are seasonally unemployed.

Accepted Answer

The answer of Commercial fishers who live in areas without...

Question 6

When the inflation rate is 3 percent and the nominal interest rate is 5 percent, the real interest rate is

Accepted Answer

The real interest rate can be approximated by subtracting the inflation rate from the nominal interest rate: 5% - 3% = 2%.

Question 7

When real GDP equals potential GDP, the natural rate of unemployment is zero percent.

Accepted Answer

Even when real GDP equals potential GDP, there will still be some level of frictional and structural unemployment, which are considered part of the natural rate of unemployment. Therefore, the natural rate of unemployment is not zero percent.

Question 8

The natural rate of unemployment includes unemployment due to a mismatch between the skills workers have and the skills new jobs require.

Accepted Answer

The natural rate of unemployment includes all types of unemployment that exist in a healthy economy, including structural unemployment caused by skills mismatches.

Question 9

When unemployment is below the natural rate, the economy probably has an inflationary gap.

Accepted Answer

This statement is true based on the Phillips curve, which shows the inverse relationship between unemployment and inflation. When unemployment is below the natural rate, it implies that the labor market is tight, and workers have more bargaining power to demand higher wages. This could lead to increased production costs, which in turn leads to higher prices and inflationary pressures in the economy.

Question 10

The natural rate of unemployment includes unemployment from changes in technology that makes workers' skills obsolete.

Accepted Answer

The natural rate of unemployment includes frictional and structural unemployment, the latter of which can result from changes in technology that make workers' skills obsolete.

Question 11

When real GDP is below potential GDP, the unemployment rate is above the natural rate.

Accepted Answer

When real GDP is below potential GDP, it means that the economy is operating below its full capacity, leading to an increase in unemployment. The natural rate of unemployment is the rate that exists when the economy is at full employment and there is no cyclical unemployment. Therefore, when real GDP is below potential GDP, the unemployment rate is above the natural rate.

Question 12

There must be cyclical unemployment during a recessionary gap.

Accepted Answer

Cyclical unemployment occurs during a recessionary gap, which is a period when there is a shortfall of demand for goods and services, resulting in a decline in economic activity and increased unemployment. When the overall economy is struggling, businesses have a harder time generating profits, and many are forced to lay off workers or reduce hours. This leads to cyclical unemployment as workers are unable to find jobs due to the lack of demand for labor.

Question 13

In an inflationary gap, the cyclical unemployment rate is negative.

Accepted Answer

In an inflationary gap, the economy is operating above its potential output, which causes an increase in prices and inflation. This means that the actual unemployment rate is lower than the natural rate of unemployment, but it cannot be negative. Therefore, the statement is false.

Question 14

The official unemployment rate can fall below the natural rate of unemployment.

Accepted Answer

The official unemployment rate can temporarily fall below the natural rate of unemployment due to factors such as temporary increases in demand or government stimulus programs. However, in the long run, the economy is likely to return to the natural rate of unemployment.

Question 15

Natural unemployment is part of the healthy functioning of a market economy.

Accepted Answer

The answer of Natural unemployment is part of the healthy...

Question 16

East Westfalia reported these unemployment rates for 2010: cyclical 3 percent, seasonal 2 percent, frictional 4 percent, and structural 6 percent. The official unemployment rate is 12 percent.

Accepted Answer

The official unemployment rate typically reflects the total percentage of the labor force that is unemployed and actively seeking employment, not the sum of different types of unemployment rates (cyclical, seasonal, frictional, and structural).

Question 17

East Westfalia reported these unemployment rates for 2015: cyclical 4 percent, seasonal 2 percent, frictional 5 percent and structural 3 percent. East Westfalia has an inflationary gap.

Accepted Answer

The information provided in the statement is not enough to determine whether East Westfalia has an inflationary gap or not.

Question 18

In a recessionary gap, frictional unemployment can temporarily fall below normal full employment levels.

Accepted Answer

During a recessionary gap, the economy is producing less than its potential, leading to higher overall unemployment, including frictional unemployment. Frictional unemployment typically does not fall below normal levels in such scenarios because it reflects short-term job transitions rather than overall economic health.

Question 19

In an inflationary gap, cyclical unemployment is probably zero.

Accepted Answer

In an inflationary gap, the economy is producing above its potential, which typically means all resources, including labor, are fully utilized, leading to very low or zero cyclical unemployment.

Question 20

Economists in Olliestan estimate the natural rate of unemployment is 7 percent. If the official unemployment rate is 5 percent, cyclical unemployment is negative.

Accepted Answer

If the natural rate of unemployment is 7 percent and the official unemployment rate is 5 percent, then there is still a 2 percent gap, indicating that there is still some cyclical unemployment present. Therefore, cyclical unemployment cannot be negative.

Quiz 7: Costs of Not Working and Living: Unemployment and Inflation