Economics Ch. 9 – Flashcards

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Cost-push inflation may be caused by
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a negative supply shock
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Real income is found by
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dividing nominal income by price index
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Real income can be determined by
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deflating nominal income for inflation
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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
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rise by about 15 percent
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Cost-push inflation
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reduces real output
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Cost of living adjustment clauses
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tie wage increases to change in the price level
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During a period of hyperinflation
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people tend to hold goods rather than money
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Inflation is undesirable because it
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redistributes real income and wealth
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If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is
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3 percent
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Recurring upswings and downswings in an economy's real GDP over time are called
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business cycles
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In the United States, business cycles have occurred against a backdrop of a long-run trend of:
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rising real GDP
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As it relates to economic growth, the term long-run trend refers to:
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business activity that occurs over 50 or 100 years
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In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?
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capital goods
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The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:
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capital goods and durable consumer goods
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The phase of the business cycle in which real GDP declines is called
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a recession
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The phase of the business cycle in which real GDP is at a minimum is called
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the trough
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A recession is defined as a period in which
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real domestic output falls
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In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
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Expansion
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What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
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Prices are sticky in the short run
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Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The labor force in Scoob is:
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102 million
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Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The unemployment force in Scoob is:
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6.9 percent
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Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 If the natural rate of unemployment in Scoob is 5 percent then
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cyclical unemployment is about 2 percent
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The United States' economy is considered to be at full employment when:
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about 4 to 5 percent of the labor force is unemployed
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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:
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frictionally unemployed
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The natural rate of unemployment is
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when the economy is at its potential output
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The labor force includes
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employed workers and persons who are officially unemployed
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Alex works in his own home as a homemaker and full time caretaker of his children. Officially, he is
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not in the labor force
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Official unemployment statistics
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understate unemployment
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Part time workers who want full time work are counted as
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fully employed
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Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:
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6 percent
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The unemployment rate is the
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percentage of the labor force that is unemployed
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A college graduate using the summer following graduation to search for a job would best be classified as:
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a part of frictional unemployment
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Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:
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structural unemployment
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Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?
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Structural and frictional unemployment
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The type of unemployment associated with recessions is called:
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cyclical unemployment
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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:
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the official unemployment rate will remain unchanged
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At the economy's natural rate of unemployment:
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the economy achieves its potential output
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During the recession is the unemployment rate in the US was about
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25 percent
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Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?
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cyclical unemployment
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The GDP gap measures the difference between
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actual GDP and potential GDP
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A large negative GDP gap implies
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a high rate of unemployment
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If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:
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$510 billion
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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:
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8 percent
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Full employment output is also called
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potential output
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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:
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okun's law
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Inflation means that
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prices on average are rising but some may be falling
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If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:
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delfation of 3.33 percent
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If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:
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11 percent
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Demand-pull inflaiton
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occurs when total spending exceeds the economy's ability to provide output at the existing price level
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The phrase "too much money chasing too few goods" best describes:
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demand pull inflation
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Inflation initiated by increases in wages or other resource prices is labeled:
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cost-push inflation
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