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Macro Economics Chapter 9

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

recessions.

business cycles.

output yo-yos.

total product oscillations.

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

declining unemployment.

stagnant productivity growth.

rising real GDP.

rising inflation.

rising real GDP.
As it relates to economic growth, the term long-run trend refers to:

the long-run increase in the relative importance of durable goods in the U.S. economy.

the long-term expansion or contraction of business activity that occurs over 50 or 100 years.

fluctuations in business activity that average 40 months in duration.

fluctuations in business activity that occur around Christmas, Easter, and other major holidays.

the long-term expansion or contraction of business activity that occurs over 50 or 100 years.
In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

Military goods.

Capital goods.

Textile products.

Agricultural commodities.

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

military goods and capital goods.

services and nondurable consumer goods.

clothing and education.

capital goods and durable consumer goods.

capital goods and durable consumer goods.
The phase of the business cycle in which real GDP declines is called:

the peak.

an expansion.

a recession.

the trough.

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

the peak.

a recession.

the trough.

the underside.

the trough.
A recession is defined as a period in which:

cost-push inflation is present.

nominal domestic output falls.

demand-pull inflation is present.

real domestic output falls.

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

Expansion.

Recession.

Peak.

Trough.

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

Government is unable to respond by changing the amount of money in circulation.

Changes in total spending cause supply shocks that cause cyclical variation.

Prices are sticky in the short run.

Prices are flexible in the long run.

Prices are sticky in the short run.
Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

(Picture11)

Refer to the given information. The labor force in Scoob is:

95 million.

102 million.

105 million.

145 million.

102 million.
Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

(Picture12)

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

2.5 percent.

3.2 percent.

5.0 percent.

6.9 percent.

6.9 percent.
Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions.

(Picture13)

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

structural unemployment is about 3 percent.

frictional unemployment is about 2 percent.

cyclical unemployment is about 2 percent.

hidden unemployment is about 5 percent.

cyclical unemployment is about 2 percent.
The United States’ economy is considered to be at full employment when:

about 4-5 percent of the total population is unemployed.

90 percent of the labor force is employed.

about 4-5 percent of the labor force is unemployed.

100 percent of the labor force is employed.

about 4-5 percent of the labor force is unemployed.
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:

cyclically unemployed.

structurally unemployed.

frictionally unemployed.

not a member of the labor force.

frictionally unemployed.
The natural rate of unemployment is:

higher than the full-employment rate of unemployment.

lower than the full-employment rate of unemployment.

that rate of unemployment occurring when the economy is at its potential output.

found by dividing total unemployment by the size of the labor force.

that rate of unemployment occurring when the economy is at its potential output.
The labor force includes:

employed workers and persons who are officially unemployed.

employed workers but excludes persons who are officially unemployed.

full-time workers but excludes part-time workers.

permanent employees but excludes temporary employees.

employed workers and persons who are officially unemployed.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

unemployed.

employed.

not in the labor force.

in the labor force.

not in the labor force.
Official unemployment statistics:

understate unemployment because individuals receiving unemployment compensation are counted as employed.

understate unemployment because discouraged workers are not counted as unemployed.

include cyclical and structural unemployment but not frictional unemployment.

overstate unemployment because workers who are involuntarily working part time are counted as being employed.

understate unemployment because discouraged workers are not counted as unemployed.
Part-time workers who want full-time work are counted as:

unemployed and therefore the official unemployment rate may overstate the level of unemployment.

unemployed and therefore the official unemployment rate may understate the level of unemployment.

fully employed and therefore the official unemployment rate may overstate the level of unemployment.

fully employed and therefore the official unemployment rate may understate the level of unemployment.

fully employed and therefore the official unemployment rate may understate the level of unemployment.
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

3 percent.

6 percent.

7 percent.

53 percent.

6 percent.
The unemployment rate is the:

ratio of unemployed to employed workers.

number of employed workers minus the number of workers who are not in the labor force.

percentage of the labor force that is unemployed.

percentage of the total population that is unemployed.

percentage of the labor force that is unemployed.
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:

decline.

increase.

increase in the short run but eventually decline.

be unchanged.

decline.
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:

seasonal unemployment.

cyclical unemployment.

structural unemployment.

frictional unemployment.

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

not officially a member of the labor force.

a part of structural unemployment.

a part of cyclical unemployment.

a part of frictional unemployment.

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

frictional unemployment.

structural unemployment.

cyclical unemployment.

compositional unemployment.

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

Frictional and cyclical unemployment.

Structural and frictional unemployment.

Cyclical and structural unemployment.

Frictional, structural, and cyclical unemployment.

Structural and frictional unemployment.
The type of unemployment associated with recessions is called:

frictional unemployment.

structural unemployment.

cyclical unemployment.

seasonal unemployment.

cyclical unemployment.
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:

the official unemployment rate will fall.

the official unemployment rate will rise.

the official unemployment rate will remain unchanged.

the size of the labor force will increase.

the official unemployment rate will remain unchanged.
The government agency responsible for collecting and reporting unemployment data is the:

Bureau of Labor Statistics.

Bureau of Unemployment.

Bureau of Economic Analysis.

Bureau of Economic Research.

Bureau of Labor Statistics.
At the economy’s natural rate of unemployment:

the economy achieves its potential output.

there is only a relatively small amount of cyclical unemployment.

only frictional unemployment exists.

only structural unemployment exists.

the economy achieves its potential output.
In the depth of the Great Depression, the unemployment rate in the United States was about:

15 percent.

33 percent.

25 percent.

40 percent.

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

Search unemployment.

Wait unemployment.

Cyclical unemployment.

Frictional unemployment.

Cyclical unemployment.
The GDP gap measures the difference between:

NDP and GDP.

NI and PI.

actual GDP and potential GDP.

nominal GDP and real GDP.

actual GDP and potential GDP.
A large negative GDP gap implies:

an excess of imports over exports.

a low rate of unemployment.

a high rate of unemployment.

a sharply rising price level.

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

$510 billion.

$490 billion.

$10 billion.

$990 billion.

$510 billion.
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:

$300 billion.

$30 billion.

$360 billion.

$630 billion.

$360 billion.
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:

4 percent.

8 percent.

10 percent.

2 percent.

8 percent.
Full-employment output is also called:

zero-unemployment output.

equilibrium output.

potential output.

zero-savings output.

potential output.
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:

Taylor’s rule.

Okun’s law.

Say’s law.

the Coase theorem.

Okun’s law.
Inflation means that:

all prices are rising, but at different rates.

all prices are rising and at the same rate.

prices on average are rising, although some particular prices may be falling.

real incomes are rising.

prices on average are rising, although some particular prices may be falling.
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

inflation of 4 percent.

inflation of 3.33 percent.

deflation of 3.33 percent.

deflation of 4 percent.

deflation of 3.33 percent.
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent.

33 percent.

91 percent.

10 percent.

11 percent.
Demand-pull inflation:

occurs when prices of resources rise, pushing up costs and the price level.

occurs when total spending exceeds the economy’s ability to provide output at the existing price level.

occurs only when the economy has reached its absolute production capacity.

is also called cost-push inflation.

occurs when total spending exceeds the economy’s ability to provide output at the existing price level.
The phrase “too much money chasing too few goods” best describes:

the GDP gap.

demand-pull inflation.

the inflation premium.

cost-push inflation.

demand-pull inflation.
Inflation initiated by increases in wages or other resource prices is labeled:

demand-pull inflation.

demand-push inflation.

cost-push inflation.

cost-pull inflation.

cost-push inflation.
Cost-push inflation may be caused by:

a decline in per unit production costs.

a decrease in wage rates.

a negative supply shock.

an increase in resource availability.

a negative supply shock.
Real income is found by:

dividing nominal income by 70.

multiplying nominal income by 1.03.

dividing the price index (in hundredths) by nominal income.

dividing nominal income by the price index (in hundredths).

dividing nominal income by the price index (in hundredths).
Real income can be determined by:

dividing the price level by nominal income.

inflating nominal income for inflation.

dividing the annual rate of inflation into the number “70.”

deflating nominal income for inflation.

deflating nominal income for inflation.
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:

fall by about 20 percent.

fall by about 2 percent.

rise by about 15 percent.

rise by about 25 percent.

rise by about 15 percent.
Cost-push inflation:

reduces real output.

increases real output.

reduces the unemployment rate.

raises the natural rate of unemployment.

reduces real output.
Cost-of-living adjustment clauses (COLAs):

invalidate the “rule of 70.”

apply only to demand-pull inflation.

increase the gap between nominal and real income.

tie wage increases to changes in the price level.

tie wage increases to changes in the price level.
During a period of hyperinflation:

creditors gain because their loans are repaid with dollars of higher value.

people tend to hold goods rather than money.

income is redistributed away from borrowers.

the real value of the national currency rises.

people tend to hold goods rather than money.
Inflation is undesirable because it:

arbitrarily redistributes real income and wealth.

invariably leads to hyperinflation.

usually is accompanied by declining real GDP.

reduces everyone’s standard of living.

arbitrarily redistributes real income and wealth.
If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

8 percent.

5 percent.

3 percent.

2 percent.

3 percent.

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