Chapter 9 Quiz Test Questions

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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 normal season variation does not signal boom or ____.
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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 wealth and income to ____, reducing spending and ultimately reducing employment.
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Fall
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A major new invention can lead to an expansion if there are ____ in investment, consumption, output, and employment.
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Increases
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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 ____ GDP gap is that what is not produced is lost forever and future economic growth will be less
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Negative
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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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Reduces the purchasing power of the dollar
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Inflation
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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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____ means that the price level is falling, whereas with ____, overall prices are rising.
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Deflation, Inflation
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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 nominal income increases ____ than the cost of living increases.
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Less
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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%
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Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. 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. 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. 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. 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%
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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%
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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%
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Lenders are helped by unanticipated inflation. True or False?
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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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