Deck 12: Business Cycles and Unemployment

Question 1

If you look for a job for eighteen months after graduation, but fail to generate an offer, even after lowering your expectations, the economy is probably in the business cycle phase called a:

A) recession.
B) peak.
C) boom.
D) recovery.

Answer 1

A

Question 2

Which phase of the business cycle follows a recession?

A) recovery
B) recession
C) peak
D) trough

Answer 2

D

Question 3

Which of the following is not a variable in the index of leading indicators?

A) average work week
B) duration of unemployment
C) unemployment claims
D) new building permits

Answer 3

B

Question 4

Which of the following is associated with peaks in the business cycle?

A) relatively high levels of unemployment
B) recessions
C) relatively low levels of unemployment
D) depressions

Question 5

Economists use the phrase "business cycle" when referring to fluctuations in:

A) real GDP.
B) the chain price index.
C) the consumer price index.
D) the general level of prices.

Question 6

Exhibit 12-1 Business cycle

In Exhibit 12-1, point E represents:

A) recession and a trough.
B) peak and a trough.
C) recession and a peak.
D) recovery and a peak.

Question 7

Economists usually use the term "recession" to refer to:

A) any slowdown in the growth of real GDP.
B) zero real GDP growth.
C) two or more consecutive quarters of declining real GDP.
D) a reduction in nominal GDP lasting more than six months.

Question 8

Which of the following is a leading business cycle indicator?

A) the unemployment rate
B) the volume of outstanding commercial loans
C) new building permits
D) personal income

Question 9

Which of the following will most likely occur during the recovery phase of a business cycle?

A) Real GDP rises, and unemployment falls.
B) Real GDP declines, and inflation rises.
C) Interest rates rise, and the number of business failures rise.
D) Inflation rises, and employment falls.

Question 10

The business cycle consists of four phases. At the top we have:

A) expansion, followed by peak, and then trough followed by a recession.
B) expansion, followed by a recession, and then peak followed by recession.
C) peak, then a trough followed by a recession, and then expansion.
D) peak, then a recession followed by a trough, and finally, recovery.

Question 11

The phase of the business cycle that follows a recession is known as the:

A) peak.
B) recession.
C) recovery.
D) trough.

Question 12

Which of the following is true of the business cycle record of the United States?

A) Recessions have been lengthier during the last two decades than was true prior to 1980.
B) Real GDP contracted throughout most of the 1950s.
C) Real GDP in 2000 was approximately the same as 1950.
D) Since 1950, the fluctuations in GDP have been less severe than before 1950.

Question 13

The period of growth in real GDP between the trough of the business cycle and the next peak is called the:

A) recessionary phase.
B) expansionary phase.
C) contractionary phase.
D) cyclical phase.

Question 14

Which of the following will most likely occur during the recessionary phase of a business cycle?

A) Real GDP rises, and the unemployment rate falls.
B) Real GDP declines, and the rate of inflation rises.
C) The sales of most businesses decline, and the unemployment rate rises.
D) Inflation rises, and employment/population ratio falls.

Question 15

How do we measure economic growth?

A) increases in the price level, as indicated by the GDP chain price index
B) increases in nominal GDP
C) increases in real GDP
D) increases in the labor force

Question 16

Exhibit 12-1 Business cycle

In Exhibit 12-1, the recovery phase of the business cycle can be represented by points:

A) A.
B) C.
C) E to G.
D) C to E.

Question 17

A business cycle is the:

A) period of time in which expansion and contraction of economic activity are equal.
B) period of time in which there are three phases: peak, depression, and recovery.
C) recurring growth and decline in real GDP.
D) period of time in which a business is established and ceases operations.

Question 18

Exhibit 12-1 Business cycle

In Exhibit 12-1, the recession phase of the business cycle can be represented by point(s):

A) CDE.
B) BCD.
C) EFG.
D) A and E.

Question 19

The government's chief forecasting gauge for business cycles is the:

A) unemployment rate.
B) real GDP.
C) personal income index.
D) index of leading indicators.

Question 20

The period of declining growth in real GDP between the peak of the business cycle and the trough is called a(n):

A) recessionary phase.
B) expansionary.
C) recovery phase.
D) stationary phase.

Question 21

Which of the following statements would come from someone classified as unemployed?

A) I'm not working. I had three interviews this week, and I'm trying to find a job.
B) I haven't had a job in a year, and I stopped looking for a job nine months ago.
C) I'm a full-time student at the University of Illinois who doesn't have time to work.
D) I can't stand my current job as a telemarketer. I used to be a nuclear engineer.

Question 22

The unemployment rate equals the number of persons:

A) unemployed divided by the number employed.
B) unemployed divided by the number in the labor force.
C) unemployed divided by the population age 16 and over.
D) not working divided by the population age 16 and over.

Question 23

Which of the following is not a coincident indicator?

A) personal income  minus transfer payments
B) industrial production
C) manufacturing and trade sales
D) average workweek

Question 24

Suppose the index of leading economic indicators begins to decline for several months. Which of the following economic events will likely follow?

A) a recession
B) severe inflation
C) greater employment
D) higher investment

Question 25

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number counted as unemployed is:

A) 10.
B) 15.
C) 40.
D) 30.

Question 26

Andrea Burris lost her job in a company layoff 5 months ago. She would take a job if one was offered, but she has given up looking for work until the economy improves. She is:

A) a member of the civilian labor force who is employed.
B) a member of the civilian labor force who is unemployed.
C) a member of the civilian labor force who is underemployed.
D) a discouraged worker who is not a member of the labor force.

Question 27

If a sizable number of workers were switched from full-time to half-time employment, then the official unemployment rate would:

A) rise.
B) fall.
C) remain unchanged.
D) react unpredictably.

Question 28

Mallory Trammell is a homemaker. Last week, she was busy with her normal household chores. She is:

A) not a member of the labor force.
B) a member of the civilian labor force who is unemployed.
C) a member of the civilian labor force who is underemployed.
D) a member of the civilian labor force who is employed.

Question 29

The presence of discouraged workers may cause:

A) GDP to be too large.
B) the employment rate to be understated.
C) the unemployment rate to be overstated.
D) the unemployment rate to be understated.

Question 30

The civilian labor force consists of:

A) all civilians over the age of 16.
B) the employed plus the unemployed who are not in the military.
C) only individuals who are actually at work during a given week.
D) civilians who are not in prisons or mental hospitals.

Question 31

One problem with the unemployment rate is that:

A) discouraged workers are included in the calculation.
B) the data includes part-time workers as fully employed.
C) underemployment is measured in the calculation.
D) teen workers are excluded from the statistics.

Question 32

Economic indicators, like unemployment claims and the average workweek, which change before real GDP changes, are called _____________ economic indicators.

A) leading.
B) lagging.
C) coincident.
D) structural.

Question 33

Martin Shore lost his job when General Motors closed down its local plant. He has been visiting the personnel offices of the other factories in the area, looking for a new job. He is:

A) a member of the civilian labor force who is employed.
B) a member of the civilian labor force who is unemployed.
C) a member of the civilian labor force who is underemployed.
D) a discouraged worker who is not a member of the labor force.

Question 34

The official measure of civilian unemployment in the U.S. might be an understatement of actual unemployment because

A) some workers become discouraged and no longer are actively seeking work. These workers are not officially counted in the labor force, and consequently are not officially unemployed.
B) the official measure of civilian unemployment fails to account for very high levels of unemployment among active-duty military personnel.
C) the statistics do not count part-time employment the same way as from full-time employment, even though many part-time workers would prefer to be fully employed.
D) retirees are included in the labor force.

Question 35

Which one of the following people is not a member of the labor force?

A) A full-time student who devotes all her time to her classes.
B) A person who works 30 hours a week at Burger King and goes to school at night.
C) The man who was fired last week and is searching for a new job.
D) A professional athlete.

Question 36

Find the size of the civilian labor force from the following data: frictional unemployment = 150, structural unemployment = 200, cyclical unemployment = 225, discouraged workers = 25, underemployed workers = 75, fully employed workers = 850, total population = 2,000.

A) 1,425
B) 1,450
C) 1,500
D) 2,000

Question 37

Variables that change before real GDP changes are measured by the:

A) personal income index.
B) real GDP index.
C) forecasting gauge.
D) index of leading indicators.

Question 38

Which of the following is not a lagging indicator?

A) duration of unemployment
B) stock prices
C) commercial and industrial loans
D) prime rate

Question 39

What generally causes the business cycle? What are the four phases of a single business cycle? What are the problems associated with the business cycle?

Question 40

Which one of the following persons would be considered unemployed?

A) a person not working who has given up searching for a job
B) a part-time worker looking for a full-time job
C) a construction worker who was laid off due to cold weather
D) a full-time college student who is not a member of the labor force

Question 41

Exhibit 12-3 Unemployment categories $$\begin{array} { | l | c | } \hline \text { Category } & \text { Workers } \\\hline \text { Frictional unemployment } & 250 \\\text { Structural unemployment } & 350 \\\text { Cyclical unemployment } & 600 \\\text { Discouraged workers } & 400 \\\text { Underemployment } & 450 \\\hline\end{array}$$ According to data in Exhibit 12-3 and assuming the total number of people working  is 8,400, the unemployment rate is

A) 5 percent.
B) 12.5 percent.
C) 16 percent.
D) 24 percent.

Question 42

Exhibit 12-2 Unemployment categories $$\begin{array} { | l | c | } \hline \text { Category } & \begin{array} { c } \text { \# of } \\\text { Individuals }\end{array} \\\hline \text { Frictional unemployment } & 20 \\\text { Structural unemployment } & 35 \\\text { Cyclical unemployment } & 60 \\\text { Discouraged workers } & 5 \\\text { Underemployed workers } & 10 \\\text { Fully employed workers } & 410 \\\text { Population } & 900 \\\hline\end{array}$$ The unemployment rate for the economy in Exhibit 12-2 is:

A) 12.8 percent.
B) 21.5 percent.
C) 22.2 percent.
D) 30.5 percent.

Question 43

An example of frictional unemployment is a(n):

A) textile worker permanently laid off due to jobs lost to imports.
B) engineer permanently laid off due to advances in technology.
C) fast-food restaurant worker who quits work and attends college.
D) computer programmer who leaves one job and accepts a new job.

Question 44

Structural unemployment is unemployment caused by:

A) temporary changes in jobs.
B) discrimination.
C) the time required to match employers and workers.
D) a mismatch between worker skills and employer requirements.

Question 45

Exhibit 12-2 Unemployment categories $$\begin{array} { | l | c | } \hline \text { Category } & \begin{array} { c } \text { \# of } \\\text { Individuals }\end{array} \\\hline \text { Frictional unemployment } & 20 \\\text { Structural unemployment } & 35 \\\text { Cyclical unemployment } & 60 \\\text { Discouraged workers } & 5 \\\text { Underemployed workers } & 10 \\\text { Fully employed workers } & 410 \\\text { Population } & 900 \\\hline\end{array}$$ Find the BLS's rate of unemployment from the following data: frictional unemployment = 150, structural unemployment = 200, cyclical unemployment = 225, discouraged workers = 25, underemployed workers = 75, fully employed workers = 850, total population = 2,000.

A) 17.5 percent
B) 23.3 percent
C) 38.3 percent
D) 39.3 percent

Question 46

The unemployment rate will decrease whenever there is a(n):

A) increase in the number of persons classified as unemployed.
B) decrease in the number of unemployed relative to the size of the labor force.
C) decrease in the size of the population and there is no change in the number of persons classified as employed.
D) reduction in the size of the labor force.

Question 47

Sam is a musician who is out of work because electronic equipment replaced live musicians. This is an example of:

A) frictional unemployment.
B) cyclical unemployment.
C) structural unemployment.
D) involuntary unemployment.

Question 48

Unemployment that is of a short duration to allow time to find a new job is:

A) structural unemployment.
B) cyclical unemployment.
C) frictional unemployment.
D) durational unemployment.

Question 49

The unemployment rate will increase whenever there is a(n):

A) increase in the number of persons classified as unemployed.
B) increase in the number of unemployed persons relative to the size of the labor force.
C) increase in the size of the U.S. population and there is no change in the number of persons classified as employed.
D) reduction in the size of the labor force.

Question 50

Exhibit 12-3 Unemployment categories $$\begin{array} { | l | c | } \hline \text { Category } & \text { Workers } \\\hline \text { Frictional unemployment } & 250 \\\text { Structural unemployment } & 350 \\\text { Cyclical unemployment } & 600 \\\text { Discouraged workers } & 400 \\\text { Underemployment } & 450 \\\hline\end{array}$$ According to data in Exhibit 12-3 and assuming the total number people working is  8,400, the civilian labor force is

A) 7,550.
B) 9,600.
C) 8,400.
D) 8,800.

Question 51

A general mismatch between the skills of unemployed workers and the skills needed by employers with job openings results in:

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) a higher labor force participation rate.

Question 52

Which of the following offers an example of structural unemployment?

A) The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and- buggy transportation.
B) The rise in unemployment among farm workers after harvest.
C) The unemployment associated with workers changing jobs.
D) The increase in unemployment during recessions.

Question 53

Bob is unemployed because his skills have become obsolete due to technological advances. This is ____ unemployment.

A) frictional
B) structural
C) cyclical
D) seasonal

Question 54

Frictional unemployment refers to:

A) people who are out of work and have no job skills.
B) short periods of unemployment needed to match jobs and job seekers.
C) people who spend relatively long periods out of work.
D) unemployment related to the ups and downs of the business cycle.

Question 55

The primary cause of frictional unemployment is:

A) discouraged workers who give up looking for work.
B) fluctuations in aggregate demand.
C) the lack of training and marketable qualifications in job seekers.
D) inaccurate information about job opportunities.

Question 56

Althea, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top 10 universities in her field. The type of unemployment she is experiencing is:

A) frictional.
B) structural.
C) underemployment.
D) cyclical.

Question 57

A person who voluntarily quits his/her job in New York and expects to get a similar job in Los Angeles is an example of:

A) structural unemployment.
B) cyclical unemployment.
C) durational unemployment.
D) frictional unemployment.

Question 58

Suppose the official unemployment rate is 10 percent. We can conclude without question that:

A) the same 10 percent of the people in the economy were out of work for the entire year.
B) one of every 10 people in the civilian labor force is currently unemployed.
C) 10 percent of the people in the civilian labor force were out of work for 10 percent of the entire year.
D) every person in the civilian labor force was out of work for 10 percent of the year.

Question 59

An individual who is employed part time, but is looking for a full-time job, is classified as:

A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) employed.

Question 60

Exhibit 12-2 Unemployment categories $$\begin{array} { | l | c | } \hline \text { Category } & \begin{array} { c } \text { \# of } \\\text { Individuals }\end{array} \\\hline \text { Frictional unemployment } & 20 \\\text { Structural unemployment } & 35 \\\text { Cyclical unemployment } & 60 \\\text { Discouraged workers } & 5 \\\text { Underemployed workers } & 10 \\\text { Fully employed workers } & 410 \\\text { Population } & 900 \\\hline\end{array}$$ Consider an economy made up of 100 people, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The unemployment rate is approximately:

A) 10 percent.
B) 12 percent.
C) 17 percent.
D) 20 percent.

Question 61

When full employment is present in the United States:

A) the rate of unemployment will fall to zero.
B) the actual rate of unemployment will be less than the natural rate of unemployment.
C) approximately 95 percent of the adult population will be employed.
D) approximately 95 percent of the labor force will be employed.

Question 62

Eric lost his job because a recession caused his employer's sales to fall. This is an example of:

A) involuntary unemployment.
B) frictional unemployment.
C) structural unemployment.
D) cyclical unemployment.

Question 63

In an economic expansion, people used their charge cards to purchase many goods. Now the economy is in a recession and people must use much of their reduced incomes to pay back debts. If employees manufacturing the goods people used to buy are laid off, they will suffer from:

A) cyclical unemployment.
B) structural unemployment.
C) permanent unemployment.
D) frictional unemployment.

Question 64

The natural rate of unemployment occurs if there is no:

A) unemployment.
B) frictional unemployment.
C) structural unemployment.
D) cyclical unemployment.

Question 65

When an economy is operating at its full employment rate of output:

A) the rate of unemployment will be zero.
B) output will exceed the economy's maximum sustainable rate.
C) the actual rate of unemployment will equal the natural rate.
D) the economy's potential rate of output will exceed actual GDP.

Question 66

Sally lost her job when her company went out of business because of a recession. This is an example of:

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) technological unemployment.

Question 67

Full employment is the rate of employment that results when:

A) all the labor resources of the economy are employed full time.
B) cyclical unemployment has reached its maximum.
C) everybody who wants a job can find one.
D) only frictional and structural unemployment are present.

Question 68

Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of:

A) structural and frictional unemployment.
B) cyclical and frictional unemployment.
C) structural and cyclical unemployment.
D) structural, frictional, and cyclical unemployment.

Question 69

Consider a broom factory that permanently closes because of foreign competition. If the broom factory's workers cannot find new jobs because their skills are no longer marketable, then they are classified as:

A) seasonally unemployed.
B) frictionally unemployed.
C) structurally unemployed.
D) cyclically unemployed.

Question 70

Unemployment that occurs from fundamental technological changes in the production, or from the substitution of new goods for customary ones, is known as:

A) cyclical unemployment.
B) seasonal unemployment.
C) frictional unemployment.
D) structural unemployment.

Question 71

A decrease in aggregate demand and the subsequent cutbacks in production lead to:

A) frictional unemployment.
B) cyclical unemployment.
C) cost-push unemployment.
D) structural unemployment.

Question 72

Susan Greenberg, who works in a typewriter factory, becomes unemployed because people start buying personal computers instead of typewriters. Susan can best be described as:

A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) not part of the labor force.

Question 73

Cyclical unemployment is primarily caused by:

A) a large proportion of youthful workers in the labor force.
B) fluctuations in aggregate demand.
C) a lack of training on the part of job seekers.
D) the failure of job seekers to search adequately for the available jobs.

Question 74

When macroeconomists refers to "full employment," what do they mean?

A) Full employment occurs when the unemployment rate equals zero.
B) Full employment occurs when there is only cyclical unemployment, and all other types of unemployment have been eliminated.
C) Full employment occurs when there is only structural unemployment, and all other types of unemployment have been eliminated.
D) Full employment occurs when there is only frictional unemployment; structural and cyclical unemployment has been eliminated.

Question 75

Juanita earned a B.S. in engineering and went to work for a large defense contractor in a small town in California. When the government cut spending, Juanita and 99 others were laid off. The only other business in the town is growing grapes to be made into raisins, but the growers refuse to hire laid-off engineers, knowing they will leave at the first opportunity. The unemployment Juanita is experiencing is:

A) cyclical.
B) structural.
C) permanent.
D) frictional.

Question 76

The type of unemployment that occurs because of a recession is called:

A) frictional unemployment.
B) seasonal unemployment.
C) natural unemployment.
D) cyclical unemployment.

Question 77

What is full employment? What are the different kinds of unemployment? What constitutes the natural (normal) rate of unemployment?

Question 78

An example of cyclical unemployment is a(n):

A) textile worker permanently laid off due to job lost to imports.
B) autoworker who is temporarily laid off due to a decline in demand for cars.
C) engineer permanently laid off due to advances in technology.
D) computer programmer who leaves one job and accepts a new job.

Question 79

It is difficult for cyclically unemployed individuals to find jobs because:

A) they do not meet the qualifications required for the available jobs.
B) the economy is in a recession.
C) they quit their last job and employers view them with suspicion.
D) they have not looked long enough to find a job.

Question 80

Full employment means which of the following is zero?

A) structural unemployment
B) cyclical unemployment
C) frictional unemployment
D) aggregate unemployment