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Eco. Chapter 6

Refer to the above diagram, the phase of the business cycle from points A to D are, respectively:

trough, recovery, expansion, peak.
peak, recession, trough, expansion.
expansion, recession, trough, peak.
peak, recession, expansion, trough.

A peak in the business cycle:

occurs when the unemployment rate is its greatest.
occurs when the inflation rate is its lowest.
is a temporary minimum point.
is a temporary maximum point.

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?

6 percent.
9 percent.
27 percent.
4 percent.

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

4 percent.
10 percent.
6 percent.
8 percent.

In calculating the unemployment rate, “discouraged” workers who are not actively seeking employment are:

treated the same as part-time workers.
included in the labor force.

The best example of a “frictionally unemployed” worker is one who:

is laid off during a recessionary period in the economy.
is discouraged and not actively seeking work.
reduces productivity by causing frictions in a business.
is in the process of voluntarily switching jobs.

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

structural unemployment.
disguised unemployment.
cyclical unemployment.
frictional unemployment.

If the GDP gap is negative, then:

potential GDP is less than actual GDP.
actual GDP is less than potential GDP.
the inflation rate is rising.
the unemployment rate is falling.

Inflation is a rise in:

industrial production.
the general level of prices over time.
the standard of living over time.
real GDP.

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 has three job interviews in the past month.

2. George works in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in several 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 jobs, but no company seems interested in her aircraft design skills.

4. Ricardo lost his job last year when his company downsized. He tried to find another job for a year but was unsuccessful and quit looking for work.

Which one best describes the frictional unemployment?


If the Consumer Price Index was 166.6 in one year and 172.2 in the next year, then the rate of inflation from one year to the next year was:

4.1 percent.
6.0 percent.
3.4 percent.
5.4 percent.

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

cost-push inflation.
demand-push inflation.
demand-pull inflation.

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

“It is important to have some skin in the game”.
“Too much money chasing too few goods”.
“A rising tide lifts all boats”.
“Money is easily earned, but not easily saved”.

Inflation caused by a rise in per-unit production costs is referred to as:

unanticipated inflation.
demand-pull inflation.
cost-push inflation.

Unanticipated inflation arbitrarily:

“subsidizes” those who receive fixed money incomes.
“taxes” those who receive fixed money incomes.
“benefits” those who save money.
“penalizes” those who borrow money.

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

both lenders and borrowers benefit.
lenders are hurt, but borrowers benefit.
both lenders and borrowers are hurt.
borrowers are hurt, but lenders benefit.

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, the official unemployment rate would:

be unchanged.
increase in the short run but eventually decline.


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