Question 1

The National Bureau of Economic Research determines that a recession is over:
A) after one year of economic growth.
B) when the economy is in a trough.
C) when the unemployment rate falls below 5%.
D) when the stock market reaches its prerecession level.

Accepted Answer

The National Bureau of Economic Research (NBER) defines the end of a recession as when the economy hits its trough, meaning the point at which it stops contracting and begins to expand again. This is not necessarily tied to a specific unemployment rate, stock market level, or period of growth.

Question 2

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it:
A) makes premature judgments as to the turning points of the business cycle.
B) makes little use of the national income and product accounts.
C) dates peaks and troughs only after they occur.
D) does not update or revise data.

Accepted Answer

The National Bureau of Economic Research's business cycle dating committee only dates peaks and troughs after they occur, meaning that it may not provide timely information for economic policymakers. However, this can also be seen as a strength because it ensures that the data is comprehensive and accurate before making judgments. The committee does make use of national income and product accounts, and regularly updates and revises data as more information becomes available. While there may be debate over the accuracy of the judgments made by the committee, there is no evidence to suggest that it makes premature judgments.

Question 3

The _____ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame.
A) consumer price index
B) National Activity Index
C) producer price index
D) Dow Jones Industrial Index

Accepted Answer

The National Activity Index (NAI) is specifically designed to identify signs of a recession in a timely manner, through a weighted average of 85 different economic indicators. The consumer price index and producer price index are measures of inflation, while the Dow Jones Industrial Index is a stock market index.

Question 4

The National Activity Index was developed by:
A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S. Treasury.
D) the Conference Board.

Accepted Answer

The National Activity Index was developed by the Federal Reserve Bank of Chicago to provide a comprehensive measure of overall economic activity and related inflationary pressure.

Question 5

The "business cycle" refers to:
A) short-run fluctuations in macroeconomic activity.
B) a long-run increase in GDP.
C) changes in the economy over the course of the four seasons.
D) changes in the economy between winter and summer.

Accepted Answer

The business cycle refers to the short-run fluctuations in macroeconomic activity, typically measured by changes in real gross domestic product (GDP) and employment. It is characterized by periods of expansion (economic growth), peak, contraction (recession), and trough. Therefore, option A is the correct answer. Option B, C, and D are incorrect as they do not define the business cycle accurately.

Question 6

We are most likely to see a recession if interest rates on long-term bonds are:
A) higher than interest rates on short-term bonds.
B) the same as interest rates on short-term bonds.
C) rising.
D) lower than interest rates on short-term bonds.

Accepted Answer

An inverted yield curve, where long-term interest rates are lower than short-term rates, is often seen as a predictor of a recession.

Question 7

The Leading Economic Index is produced by:
A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S. Treasury.
D) the Conference Board.

Accepted Answer

The Leading Economic Index is produced by the Conference Board, a non-profit research organization that provides economic indicators and analysis.

Question 8

Which of the following is true about business cycles?
A) They all have the same approximate length.
B) Every cycle is unique.
C) Each recession causes the same amount of unemployment.
D) The intensity tends to be constant from recession to recession, but the duration differs.

Accepted Answer

Every business cycle is unique in terms of its length, depth, and shape.

Question 9

Which organization determines the beginning and end dates of a recession?
A) the Council of Economic Advisers
B) the National Bureau of Economic Research
C) the U.S. Treasury Department
D) the Federal Reserve Board of Governors

Accepted Answer

The National Bureau of Economic Research (NBER) is the organization responsible for determining the official start and end dates of recessions in the United States.

Question 10

The National Activity Index:
A) is a weighted average of 85 indicators of national economic activity.
B) is a weighted average of estimates of economic activity by the National Bureau of Economic Research (NBER) and the Bureau of Economic Activity (BEA).
C) is produced by the NBER.
D) is a measure of unemployment and participation in the labor force.

Accepted Answer

The National Activity Index is a weighted average of 85 indicators of national economic activity, designed to gauge overall economic activity and related inflationary pressure.

Question 11

When a recession gets under way:
A) firms start to lay off workers to reduce costs.
B) consumer confidence rises because people expect an eventual recovery.
C) inflation always rises because the government prints more money.
D) inflation falls because the government reduces its budget deficit.

Accepted Answer

During a recession, firms tend to experience a decline in demand and revenues, which often leads to cost-cutting measures such as workforce reduction (layoffs) to decrease their expenses and stay afloat.

Question 12

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend.
A) rapid; slowing; equal to
B) slow; accelerating; equal to
C) historical; slowing; faster than
D) historical; accelerating; slower than

Accepted Answer

When the National Activity Index is at zero, it indicates that the economy is growing at historical rates. Negative values imply slowing trends, whereas positive values imply that growth is faster than the long-term trend. Therefore, option C, which states that the economy is growing at historical rates when the index is at zero, is the most appropriate choice.

Question 13

Which is NOT a criticism of the National Bureau of Economic Research's recession dating?
A) Dates are announced long after the economy turned.
B) Deliberations are not made public.
C) Its use of revised data introduces errors in dating.
D) There is no single consistent methodology used in dating.

Accepted Answer

The statement "Its use of revised data introduces errors in dating" is a criticism of the National Bureau of Economic Research's recession dating, so it is not the answer to the question. A, B, and D are criticisms of the NBER's recession dating.

Question 14

A(n) _____ in the business cycle usually means the economy is operating at its capacity.
A) upward trend
B) peak
C) recession
D) recovery

Accepted Answer

A peak in the business cycle means that the economy has reached its highest point of growth and expansion, suggesting that it is operating at or near capacity. This is followed by a downturn or contraction, as the economy starts to slow down before eventually reaching a trough or bottoming out, which signals the start of a recovery phase.

Question 15

We are most likely to see a recession if interest rates on long-term bonds are _____ and interest rates on short-term bonds are _____.
A) 8%; 6%
B) 5%; 5%
C) 7%; 7%
D) 2%; 4%

Accepted Answer

A recession is often predicted by an inverted yield curve, where long-term interest rates are lower than short-term rates, as seen in option D.

Question 16

We should most likely expect a recession if the Leading Economic Index:
A) falls for three months in a row.
B) rises for three months in a row.
C) rises for six months in a row.
D) falls for six months in a row.

Accepted Answer

The Leading Economic Index (LEI) is a composite of 10 economic indicators that are used to predict the direction of the economy. A decline in the LEI for three months in a row is a sign that the economy is likely to enter a recession.

Question 17

Which of the following statements is true about the National Activity Index?
A) When the index has a zero value, the economy has reached a trough.
B) Negative values always mean the economy is in a recession.
C) Positive values indicate the economy may face a period of increasing inflation.
D) Negative values mean the economy is growing more slowly than its long-term trend.

Accepted Answer

Negative values of the National Activity Index indicate that the economy is growing more slowly than its long-term trend, but not necessarily in a recession.

Question 18

A change in the Leading Economic Index is supposed to reflect:
A) how the economy behaved recently.
B) how the economy is behaving.
C) how the economy will behave in the near future.
D) an average of how the economy has behaved over the most recent business cycle.

Accepted Answer

The Leading Economic Index is designed to predict future changes in the economy. Therefore, a change in the index is supposed to reflect how the economy will behave in the near future, not how it has behaved recently or how it is currently behaving.

Question 19

The economy is least likely to be heading into a recession when the National Activity Index equals:
A) -0.33.
B) 0.55.
C) -0.98.
D) 0.81.

Accepted Answer

A positive National Activity Index, such as 0.81, suggests above-average growth, indicating the economy is less likely to be heading into a recession.

Question 20

Which of the following correctly lists the sequence of stages in the business cycle?
A) recession, peak, expansion, trough
B) recession, expansion, peak, trough
C) recession, trough, expansion, peak
D) recession, trough, peak, expansion

Accepted Answer

The answer of Which of the following correctly lists the...

Quiz 5: Introduction to Macroeconomics

The National Bureau of Economic Research determines that a recession is over:

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it:

The _____ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame.

The National Activity Index was developed by:

The "business cycle" refers to:

We are most likely to see a recession if interest rates on long-term bonds are:

The Leading Economic Index is produced by:

Which of the following is true about business cycles?

Which organization determines the beginning and end dates of a recession?

The National Activity Index:

When a recession gets under way:

When the National Activity Index is at zero, the economy is growing at ___ rates. Negative values imply _ trends. Positive values imply that growth is ___ the long-term trend.

Which is NOT a criticism of the National Bureau of Economic Research's recession dating?

A(n) _____ in the business cycle usually means the economy is operating at its capacity.

We are most likely to see a recession if interest rates on long-term bonds are _ and interest rates on short-term bonds are _.

We should most likely expect a recession if the Leading Economic Index:

Which of the following statements is true about the National Activity Index?

A change in the Leading Economic Index is supposed to reflect:

The economy is least likely to be heading into a recession when the National Activity Index equals:

Which of the following correctly lists the sequence of stages in the business cycle?