question

Underlying cause of business cycle fluctuations?

answer

- Unexpected financial bubbles that eventually burst. - Shocks to the money supply by the nation's central bank. - Supply shocks caused by major innovations.

question

How can the annual rate of inflation be found?

answer

By subtracting last year's price index from this year's price index and dividing the difference by last year's price index.

question

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

answer

be in the labor force

question

Inflation means that:

answer

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

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Cost-push inflation:

answer

...reduces real output.

question

Cyclical unemployment.

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Types of unemployment that is directly associated with insufficient overall demand for goods and services.

question

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:

answer

Okun's law.

question

(Last Word) In response to the Great Recession, Congress extended the maximum period for drawing unemployment benefits from 26 to 99 weeks. While this was done to help workers financially and to help the economy by stimulating demand, it had what unintended consequence?

answer

It prompted inefficiently long searches that kept the unemployment rate higher.

question

The natural rate of unemployment is the:

answer

full-employment unemployment rate.

question

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

answer

Demand-pull inflation.

question

Real income is found by:

answer

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

question

If the unemployment rate is 9 percent and the natural rate of unemployment is 5.5 percent, then the:

answer

cyclical unemployment rate is 4 percent.

question

(Consider This) Which of the following best explains why unemployment rises significantly during a recession?

answer

Wages are flexible upward but sticky downward.

question

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

answer

inflation imposes a "hidden tax" on those who hold money.

question

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:

answer

7 percent.

question

The presence of discouraged workers:

answer

may cause the official unemployment rate to understate the true amount of unemployment.

question

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:

answer

the official unemployment rate will remain unchanged. (because the BLS counts all part-time employees as full-time)

question

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

answer

demand-pull inflation.

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Unanticipated inflation:

answer

reduces the real burden of the public debt to the federal government.

question

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

answer

There are a wide range of theories as to the underlying causes of business cycle movements.

question

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

answer

business cycles.

question

(Consider This) Some economists believe that modest inflation, say 2-3 percent, might help reduce unemployment during recessions. What is the argument of economists who reject this idea?

answer

Wages and other costs would rise with the inflation, keeping firms from expanding employment.

question

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

answer

a part of frictional unemployment.

question

The type of unemployment associated with recessions is called:

answer

cyclical unemployment.

question

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

answer

3.5 percent.

question

The natural rate of unemployment is:

answer

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

question

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

answer

the construction industry.

question

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

answer

The central bank printing less money than was anticipated.

question

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:

answer

frictionally unemployed.

question

Answer the question on the basis of the following information about a hypothetical economy: --------------------------------------------------------- Full time employed = 80 Part time employed = 25 Unemployed = 15 Discouraged Workers = 5 Members of underground economy = 6 Consumer Price Index = 110 ----------------------------------------------------------- Refer to the given information. The unemployment rate is:

answer

12.5% (80+25+15 = 120; 15/120 x 100 = 12.5)

question

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

answer

significant innovations occur irregularly and unexpectedly.

question

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:

answer

decline

question

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

answer

a recession.

question

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

answer

if prices are sticky.

question

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

answer

the trough.

question

What are the four phases of the Business Cycle?

answer

Peak Recession Through Expansion

question

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:

answer

frictionally unemployed.

question

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:

answer

8 percent. (Per Okun's law, for every 1% point by which the actual unemployment rate exceeds the natural rate, a negative GDP Gap of 2% occurs)

question

A lender need not be penalized by inflation if the:

answer

lender correctly anticipates inflation and increases the nominal interest rate accordingly.

question

Business Cycle

answer

A short-run alteration between economic upturns and downturns

question

Inflation

answer

_______ redistributes total income

question

According to McConnell, what are the reasons for teenagers having a much higher unemployment rate?

answer

- Less geographic mobility - Quit more frequently - More frequently "fired" - Lower skills level

question

The labor force is the sum of what?

answer

The employed and unemployed

question

Inflation exists when there is an increase in _____ over a sustained period of time

answer

Price

question

Expansion Period:

answer

- Output rises - Price level may rise

question

The long-run trend of the US economy is :

answer

Expansion and Growth

question

what is the formula for the consumer price index?

answer

The price of the most recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100

question

who is hurt by anticipated inflation?

answer

- Creditors - people on fixed income - savers

question

What is the rate of inflation?

answer

The percentage change of the consumer price index from one year to the next

question

Structural unemployment

answer

The portion of unemployment that is due to the mismatch of skills and jobs

question

What is nominal income?

answer

The number of dollars received as wages, rent, interest or profits in current dollars

question

What are all of the consequences of unexpected lower total spending in the short-run when prices are sticky?

answer

- fewer items are purchased - GDP declines - Firms cut back on production - Firms sell fewer units of output - Unemployment rises

Chapter 9 – Business Cycles, Unemployement, and Inflation – Flashcards

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