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In sequential order, the four phases of the business cycle are

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peak, recession, trough, and expansion

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The length of a complete cycle

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varies from about 2 to 3 years to as long as 15 years.

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Seasonal variations and long-run trends complicate the measurement of the business cycle because

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normal seasonal variation does not signal boom or recession.

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The business cycle affects output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing nondurables because capital goods and durable goods

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last and these purchases can be postponed.

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A financial crisis can lead to a recession because it can cause

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wealth and income to fall, reducing spending and ultimately reducing employment.

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A major new invention can lead to an expansion if there are

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increases in investment, consumption, output, and employment

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How is the labor force defined and who measures it?

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The U.S. Bureau of Labor Statistics (BLS) measures the labor force as people over 16 years of age who are actively seeking work.

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The unemployment rate is the

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number of unemployed persons divided by the labor force.

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If the unemployment rate increases, the size of the labor force

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could increase or decrease

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A positive unemployment rate—one more than zero percent—is fully compatible with full employment because at full employment,

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unemployment includes frictional unemployment, which is always positive because people are transitioning to new jobs

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In general, unemployment rates are higher for

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African Americans, Hispanics, workers in lower-skilled occupations, and less-educated workers

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The average length of time people are unemployed rises during a recession because

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businesses continue to lay-off workers as a result of the decrease in demand.

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A difficult aspect of measuring the unemployment rate is

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determining who is eligible and available to work.

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Which of the following illustrates the difficulty of distinguishing between frictional, structural, and cyclical unemployment?

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A person quits his job in search of a better one, but the former job is in a declining industry and disappears completely.

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Unemployment is an economic problem because

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a unit of labor resource that could be engaged in production is sitting idle

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The consequence of a negative GDP gap is that

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what is not produced is lost forever and future economic growth will be less.

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The noneconomic effects of unemployment include

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a sense of failure created in parents and in their children

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The United States has an unemployment compensation program that provides income for those out of work. Unemployment is

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still a problem because the unemployment compensation program merely gives the unemployed enough funds for basic needs.

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The Consumer Price Index (CPI) is constructed by

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comparing the value of a "market basket" of goods that consumers typically purchase to the value of the basket in a base year.

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The Bureau of Labor Statistics (BLS) would calculate the rate of inflation in year 5 by

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subtracting the CPI of year 4 from the CPI of year 5, and then dividing by the CPI of year 4

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Inflation does what?

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It reduces the purchasing power of the dollar

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The nominal interest rate

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minus the inflation rate is the real interest rate

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True or false? Deflation means that the price level is falling, whereas with inflation, overall prices are rising

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True

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Demand-pull inflation occurs when

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prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output.

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A negative GDP gap is associated with

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cost-push inflation

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A positive GDP gap is associated with

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demand-pull inflation.

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An increase in your nominal income and a decrease in your real income can occur simultaneously if your

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nominal income increases less than the cost of living increases.

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The losers from inflation are those with

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fixed incomes in nominal terms

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Those who lose the most from unemployment are

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minority groups and those with the least skill

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Consider the choice between (a) full employment with a 6 percent annual rate of inflation or (b) price stability with an 8 percent unemployment rate. Which of the following statements is true?

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Option (a) risks inflationary expectations that will give rise to creeping inflation, whereas option (b) might lower spending and push the economy toward deflation

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Hyperinflation might lead to a severe decline in total output if

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everyone starts speculating and searching for ways to avoid inflation.

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Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in:

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The level of total spending

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Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?

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10 percent.

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Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. a. Tim just graduated and is looking for a job

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Frictional unemployment

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Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. b. A recession causes a local factory to lay off 30 workers:

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Cyclical unemployment

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Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. c. Thousands of bus and truck drivers permanently lose their jobs when driverless, computer-driven vehicles make human drivers redundant:

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Structural unemployment

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Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India:

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Structural unemployment

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The unemployment rate that is consistent with full employment is known as

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The natural rate of unemployment

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A country's current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy's negative GDP gap?

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10 percent

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Cost-push inflation occurs when there is

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Rising per-unit production costs

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Jimmer's nominal income will go up by 10 percent next year. Inflation is expected to be - 2 percent next year. By approximately how much will Jimmer's real income change next year?

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12 percent

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Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank?

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7 percent

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True or False: Lenders are helped by unanticipated inflation

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False

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Economists agree that ________________ inflation reduces real output.

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Cost-push

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