Chapter 9

Recurring upswings and downswings in an economy's real GDP over time are called:

In the United States, business cycles have occurred against a backdrop of a long-run trend of:

Most economists agree that the immediate determinant of the volume of output and employment is the:

As it relates to economic growth, the term long-run trend refers to:

5. In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

6. The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

7. During a severe recession, we would expect output to fall the most in:

The phase of the business cycle in which real GDP declines is called:

9. The phase of the business cycle in which real GDP is at a minimum is called:

10. The production of durable goods varies more than the production of nondurable goods because:

11. A recession is defined as a period in which:

12. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

13. Which of the following statements is true about causes of business cycle fluctuations?

14. Which of the following is not seen by economists as an underlying cause of business cycle fluctuations?

15. Most economists agree that the immediate cause of most business cycle variation is:

16. An unexpected increase in total spending will cause an increase in GDP:

17. What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

18. Innovations such as the microchip and the Internet lead to business cycle variations because:

19. Which of the following would most likely move the economy into a recession in the short term?

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions 20. Refer to the above information. The labor force in Scoob is:

21. Refer to the above information. The unemployment rate in Scoob is:

22. Refer to the above information. If the natural rate of unemployment in Scoob is 5 percent, then:

23. The United States' economy is considered to be at full employment when:

24. In the United States, the rate of unemployment is highest for:

25. Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is:

26. According to the Bureau of Labor Statistics, to be officially unemployed a person must:

27. The natural rate of unemployment is:

28. The labor force includes:

29. The unemployment rate of:

30. Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

31. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:

32. Official unemployment statistics:

33. The presence of discouraged workers:

34. Part-time workers are counted as:

35. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

36. The natural rate of unemployment is the:

37. Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as:

38. The unemployment rate is the:

39. Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would:

40. Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with:

41. Cyclical unemployment results from:

42. Which of the following is correct?

43. A college graduate using the summer following graduation to search for a job would best be classified as:

44. Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

45. Structural unemployment:

46. Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as:

47. Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?

48. Wait unemployment and search unemployment are both types of:

49. The type of unemployment associated with recessions is called:

50. Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:

51. The government agency responsible for collecting and reporting unemployment data is the:

52. At the economy's natural rate of unemployment:

53. In the depth of the Great Depression, the unemployment rate in the United States was about:

Answer the question on the basis of the following information about a hypothetical economy: 54. Refer to the above information. The unemployment rate is:

55. Refer to the above information. If the members of the underground economy are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about:

56. Refer to the above information. The rate of inflation:

57. Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?

58. The GDP gap measures the difference between:

59. A large negative GDP gap implies:

60. The aggregate cost of unemployment can be measured by the:

61. If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:

62. If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is:

63. If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:

64. If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is:

65. Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is:

66. The relationship between the size of the negative GDP gap and the unemployment rate is:

67. If actual GDP is less than potential GDP:

68. Full-employment output is also called:

Answer the question on the basis of the following information for a specific year in a hypothetical economy for which Okun's law is applicable: 69. Refer to the above data. The size of the negative GDP gap as a percent of potential GDP for the above economy is:

70. Refer to the above data. The amount of output being forgone by the above economy is:

71. Refer to the above data. If the unemployment rate in the above economy fell to 6 percent, we could conclude that:

72. Okun's law:

73. For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:

74. Inflation means that:

75. If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

76. The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

77. The annual rate of inflation can be found by subtracting:

78. If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

79. As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:

80. Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about:

81. Given the annual rate of inflation, the "rule of 70" allows one to:

82. If Fred's annual real income rises by 8 percent each year, his annual real income will double in about:

83. If the rate of inflation is 12 percent per year, the price level will double in about:

84. Compared to other industrial nations, inflation rates in the United States are:

85. Demand-pull inflation:

86. Demand-pull inflation:

87. The phrase "too much money chasing too few goods" best describes:

88. Unlike demand-pull inflation, cost-push inflation:

89. Inflation initiated by increases in wages or other resource prices is labeled:

90. Cost-push inflation:

91. Cost-push inflation may be caused by:

92. Rising per-unit production costs are most directly associated with:

93. Which of the following would most likely occur during the expansionary phase of the business cycle?

94. Real income is found by:

95. Which of the following formulas is correct? Percentage change in:

96. Real income can be determined by:

97. Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

98. Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

99. Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will:

100. In 2005, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income:

101. In which of the following cases would real income rise?

102. Under which of the following circumstances would we observe the greatest increase in real income?

103. Cost-push inflation:

104. Cost-of-living adjustment clauses (COLAs):

105. During a period of hyperinflation:

106. Inflation is undesirable because it:

107. Who is least likely to be hurt by unanticipated inflation?

108. A lender need not be penalized by inflation if the:

109. Unanticipated inflation:

110. Inflation affects:

111. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

112. If both the real interest rate and the nominal interest rate are 3 percent, then the:

113. Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is:

114. Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

115. (Consider This) The feudal practice of clipping coins illustrates the idea of:

116. (Consider This) The main point of the Consider This box on clipping coins is that:

117. (Last Word) Declines in stock prices measured by the Dow Jones average:

18. (Last Word) Changes in stock market prices:

119. (Last Word) A burst stock market bubble might adversely affect the economy by:

2. The above diagram is best described as an idealized:

3. Refer to the above diagram. The phases of the business cycle from points A to D are, respectively:

4. Refer to the above diagram. The straight line E drawn through the wavy lines would provide an estimate of the:

5. Which phase of the business cycle would be most closely associated with an economic contraction?

6. A peak in the business cycle:

7. A trough in the business cycle occurs when:

8. In the expansion phase of a business cycle:

9. A recession is a decline in:

10. What has been the range of the decline in real output during recessions in the U.S. between 1950 and 2001?

11. What has been the range for the duration in months of U.S. recessions between 1950 and 2001?

12. Which of the following groups declares the start and end of recessions in the U.S.?

13. Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because:

14. Most economists agree that the immediate cause of the majority of cyclical changes in the level of real output is unexpected changes in the:

15. The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors?

16. In which industry or sector of the economy is output least likely to be affected by the business cycle?

17. Which statement is correct?

18. The unemployment rate is interpreted as the percentage of the:

19. The full-time homemakers and retirees are classified in the BLS data as:

20. The unemployed are those people who:

21. Which of the following is the correct way to calculate the unemployment rate?

22. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:

23. A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?

24. The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

25. The total population of an economy is 175 million, the labor force is 125 million, and the number of employed workers is 117 million. The unemployment rate for this economy is:

26. The total adult population of an economy is 175 million, the number of employed is 122 million, and the number of unemployed is 17 million. The percent of adults who are not in the labor force is:

27. The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is:

28. In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are:

29. In calculating the unemployment rate, part-time workers are:

30. Official unemployment rate statistics may:

31. The best example of a "frictionally unemployed" worker is one who:

32. A worker who loses a job at a call center because business firms switch the call center to another country is an example of:

33. Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is:

34. New college graduates still looking for their first jobs would be classified in the BLS data as:

35. A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

36. Unemployment that occurs when there is deficient demand for the goods and services of an economy is called:

37. Which of the following statements is correct?

38. A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?

39. Search and wait unemployment is another way to describe:

The descriptions give the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. 1. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month, but still has not gotten a job offer. 2. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. 3. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. 4. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year, but was unsuccessful and quit looking for work. 40. Refer to the above information. Which individual is frictionally unemployed?

41. Refer to the above information. Which individual is structurally unemployed?

42. Refer to the above information. Which individual is cyclically unemployed?

43. Refer to the above information. Which individual would be classified as a discouraged worker?

44. Refer to the above information. Which individual would be included in the calculation of the full-employment unemployment rate?

45. "Full employment" refers to the situation when there is:

46. The full-employment rate of unemployment is also called the:

47. The natural rate of unemployment:

48. The rate of unemployment when the economy is at its potential output is called the:

49. The full-employment unemployment rate for the United States economy is now generally considered to be:

50. Potential GDP is the output that would be produced if the economy was experiencing:

51. The GDP gap measures the amount by which:

52. The amount by which actual GDP falls short of potential GDP is one measure of the:

53. If the GDP gap is positive, then:

54. If unemployment is above the natural rate of unemployment, then potential GDP is:

55. The higher the rate of unemployment:

56. If the unemployment rate for the United States economy rises from 7 to 11 percent during a year, we can conclude that:

57. If the negative GDP gap were equal to 4% of the potential GDP, Okun's law suggests that the actual unemployment rate would exceed the natural rate of unemployment by:

58. If the natural rate of unemployment was 6 percent, the current unemployment rate was 10 percent, and the potential GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed:

59. Okun's law indicates that for:

60. If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is:

61. A high unemployment rate most likely means that there is a:

62. The rate of unemployment tends to be lowest for:

63. Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:

64. The unemployment rates in the U.S. from 1999 to 2009 were in the range of:

65. In the Great Recession of 2007-2009, unemployment rates for men:

66. "Depression means idleness. And idleness means loss of skills, loss of self-respect, plummeting morale, family disintegration, and sociopolitical unrest." This quote describes some of the:

67. From 1999 to 2009, the unemployment rate in the United States compared with other industrially advanced nations, such as France and Germany, has been:

68. Inflation is a rise in:

69. When inflation occurs:

70. The CPI compiled by the Bureau of Labor Statistics is used in the computations for:

71. If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was:

72. If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately:

73. The inflation rate measures the percentage growth rate of:

74. Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

75. Which measure of inflation would include consumer goods and capital goods?

76. If the Consumer Price Index was 125 in one year and 120 in the following year, then the rate of inflation is approximately:

77. If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about:

78. If the CPI declines from one year to the next, then the following statements are true, except:

79. Which of the following statistics can turn negative?

80. The economy has an annual inflation rate of 3.5%. It will take approximately how many years for the price level to double?

81. Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately:

82. Inflation rates in the U.S. from 1960 to 2009 were within the range of:

83. Inflation rates in the U.S. reached double-digit rates in the:

84. Which of the following countries experienced deflation for several years in the period 1999-2009?

85. Inflation caused by an increase in aggregate spending is referred to as:

86. Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is:

87. A statement that is often used to describe demand-pull inflation is:

88. Which of the following is a correct statement?

89. Inflation caused by a rise in the prices of inputs is referred to as:

90. When oil and energy prices rise, the economy tends to experience:

91. Only two resources, capital and labor, are used in an economy to produce an output of 600 million units. If the total cost of capital resources is $300 million and the total cost of labor resources is $100 million, then the per-unit production costs in this economy are:

92. In an economy, only two resources, capital and labor, are used to produce 50 units of output. If the total cost of capital resources is $125 and the total cost of labor resources is $25, then the per unit production costs are:

93. When total input costs rise slower than the total units of output produced, then the per-unit production costs:

94. If you knew that the per-unit production cost was $8 and that the total cost of inputs was $1,000, then the number of

95. Cost-push inflation tends to be characterized by all of the following, except:

96. Core inflation refers to the inflation picture after stripping away the:

97. For a given amount of nominal income, the real income will:

98. If the average level of nominal income in a nation is $44,000 and the price level index is 175, the average real income would be about:

99. Real income will rise from one year to the next if nominal income:

100. In Year 1, the price level was 120 and the average nominal income was $30,000. In Year 2, the price level was 125 and the average nominal level of income was $32,000. What happened to real income from Year 1 to Year 2?

101. If a person's nominal income increases by 5% while the price level increases by 2%, then that person's real income:

102. A person's real income will increase by 3% if her nominal income:

103. Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct?

104. If the price level increases by 15 percent while nominal income increases by 8 percent, then in percentage terms real income would:

105. For a person to keep his real income steady at a certain level from one year to the next, his nominal income must:

106. The percentage change in one's real income can be approximated by:

107. Unanticipated inflation arbitrarily:

108. Unanticipated inflation tends to penalize:

109. Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:

110. When unanticipated deflation occurs:

111. Which of the following groups has traditionally benefited from unanticipated inflation?

112. A worker would be hurt least by inflation when the:

113. Which statement about inflation is correct?

114. In what circumstances would lenders most benefit?

115. You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent. The inflation premium is:

116. With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But, if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:

117. If the inflation premium is 3% and the real interest on a loan is 4%, then the nominal interest rate is:

118. Which of the following statements is correct?

119. A cumulative wage-price spiral which produces a rapid and huge increase in the price level can be characterized as:

120. In the 1920s, Germany after the First World War experienced an economic condition which can be best described as:

121. Cross-country studies that bolster the "zero inflation" view indicate that lower rates of inflation are associated with:

122. What are the primary effects of cost-push inflation?

124. What is an advantage of mild inflation according to some economists?

125. What does research indicate about the effect volatility of stock-price averages on the stability of the macroeconomy?

126. When stock market bubbles burst, the following usually occur, except:

127. Which of the following statements is true?