Deck 12: Short-Run Fluctuations

Question 1

During a recession,real GDP falls.Which of the following also tends to fall?

A) Real consumption
B) Real investment
C) Employment
D) All of the above

Answer 1

All of the above

Question 2

Since the Great Depression,how long have U.S.recessions lasted,on average?

A) About 6 months
B) About 12 months
C) About 18 months
D) About 24 months

Answer 2

About 12 months

Question 3

Which of the following statements about U.S.recessions since the Great Depression is correct?

A) Recessions have occurred regularly, every 6 years.
B) Recessions have occurred irregularly, approximately every 6 years.
C) Recessions have occurred regularly, every 10 years.
D) Recessions have occurred irregularly, approximately every 10 years.

Answer 3

Recessions have occurred irregularly, approximately every 6 years.

Question 4

The major recession that occurred sometime between 2005 and 2015 occurred during which years?

A) 2006−2008
B) 2007−2009
C) 2008−2010
D) 2009−2011

Question 5

Which of the following is true?

A) Investment growth tends to be high when GDP growth is low.
B) Investment growth tends to be high when consumption growth is high.
C) Consumption growth tends to be high when GDP growth is low.
D) Unemployment growth tends to be high when GDP growth is high.

Question 6

Since the Great Depression,approximately how often have U.S.recessions occurred?

A) About once every 6 years
B) About once every 10 years
C) About once every 14 years
D) About once every 18 years

Question 7

Which of the following is true of economic expansions?

A) Governments can correctly predict the duration of economic expansions.
B) Economic expansions are defined as the periods between recessions.
C) Output grows and unemployment is high during periods of economic expansion.
D) Consumption increases but investment falls during periods of economic expansion.

Question 8

Which of the following rises during a recession?

A) Consumption
B) Investment
C) GDP
D) Unemployment

Question 9

During an expansion,real GDP rises.Which of the following also tends to rise?

A) Real consumption
B) Real investment
C) Employment
D) All of the above

Question 10

A short-run change in ________ is referred to as a business cycle.

A) the growth rate of real GDP
B) the aggregate price level
C) the currency exchange rate
D) the expenditure incurred by the government

Question 11

What are the three properties of economic fluctuations?

Question 12

Which of the following is true of growth in developed and developing countries?

A) Growth is completely steady in both developed and developing countries.
B) Growth is completely steady in developed countries but fluctuates in developing countries.
C) Growth fluctuates in developed countries but is completely steady in developing countries.
D) Growth fluctuates in both developed and developing countries.

Question 13

Which of the following is true?

A) Expansions have different durations.
B) Expansions are always shorter than recessions.
C) Recessions are always accompanied by high rates of inflation.
D) Economists can accurately predict the end of a recession.

Question 14

Another common term for a recession is a(n)________.

A) expansion
B) boom
C) peak
D) contraction

Question 15

How many major deviations from trend GDP has the United States experienced between 1929 and 2017?

A) one
B) two
C) three
D) four

Question 16

Recovery after the recession of 2007-2009 was slow.When do economists generally believe U.S.real GDP returned to trend after this recession?

A) About 2010
B) About 2013
C) About 2016
D) It was still below trend by 2016

Question 17

What can government policies do about the business cycle?

A) Government policies can completely negate the business cycle.
B) Government policies can eliminate expansions but not recessions.
C) Government policies can reduce the severity of the business cycle.
D) Government policies cannot affect the business cycle at all.

Question 18

In the United States,recessions are informally defined as ________ in real GDP.

A) two consecutive quarters of negative growth
B) three consecutive quarters of negative growth
C) two consecutive quarters of positive growth
D) three consecutive quarters of positive growth

Question 19

The Great Depression and World War II both caused major deviations from trend GDP.The Great Depression resulted in real GDP moving significantly ________ trend GDP; World War II resulted in real GDP moving significantly ________ trend GDP.

A) above; above
B) above; below
C) below; above
D) below; below

Question 20

Which of the following falls during an economic boom?

A) Unemployment
B) GDP
C) Consumption
D) Investment

Question 21

Suppose there is a recession in 2021.When could the next recession occur?

A) No sooner than 2025
B) No sooner than 2024
C) No sooner than 2023
D) It could occur in 2022

Question 22

How do consumption and investment tend to move during the business cycle?

A) Consumption and investment both tend to rise or fall together
B) Consumption tends to rise when investment falls, and vice versa
C) Consumption always rises, even while investment rises and falls with the business cycle
D) Investment always rises, even while consumption rises and falls with the business cycle

Question 23

During the Great Depression,real GDP fell.Which of real consumption and real investment also fell?

A) Both real consumption and real investment
B) Real consumption only
C) Real investment only
D) Neither real consumption nor real investment

Question 24

What happened during the Great Depression?

Question 25

If the economy is in an expansion this quarter,it will probably ________.

A) experience zero growth next quarter
B) experience negative growth next quarter
C) experience positive growth next quarter
D) be completely unpredictable next quarter

Question 26

On a graph with real consumption growth on the x-axis and real investment growth on the y-axis,you plot each year's values for the United States as a separate point.What does the overall trend in this graph look like?

A) An upward-sloping line
B) A vertical line
C) A horizontal line
D) A downward-sloping line

Question 27

Economic growth is said to be persistent,meaning that if the economy is in an expansion this quarter,it will probably ________.

A) experience zero growth next quarter
B) experience negative growth next quarter
C) experience positive growth next quarter
D) be completely unpredictable next quarter

Question 28

On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis,you plot each year's values for the United States as a separate point.What does the overall trend in this graph look like?

A) An upward-sloping line
B) A vertical line
C) A horizontal line
D) A downward-sloping line

Question 29

Which of the following terms refers to an unusually severe,prolonged recession,typically with an unemployment rate that exceeds 20 percent?

A) Depression
B) Inflation
C) Deflation
D) Stagflation

Question 30

When did the Great Depression occur?

A) The early 1930s
B) The late 1930s
C) The early 1940s
D) The late 1940s

Question 31

Economic growth is said to be persistent,meaning that if the economy is in a recession this quarter,it will probably ________.

A) experience zero growth next quarter
B) experience negative growth next quarter
C) experience positive growth next quarter
D) be completely unpredictable next quarter

Question 32

Which group anticipated the Great Depression?

A) Policymakers
B) Economists
C) Business leaders
D) None of the above

Question 33

What is the longest an expansion could be?

A) Up to 5 years
B) Up to 7 years
C) Up to 10 years
D) Longer than 10 years

Question 34

What phrase describes best the predictability of turning points in the U.S.economy?

A) Perfect predictability
B) Almost perfect predictability
C) Limited predictability
D) Zero predictability

Question 35

What event is associated with the start of the Great Depression?

A) The beginning of World War I
B) The beginning of World War II
C) A stock market crash
D) A government coup

Question 36

Consumption spending adjusted for inflation is known as ________.

A) investment
B) nominal consumption
C) real consumption
D) GDP

Question 37

Predicting when an expansion will end is ________; predicting when a recession will end is ________.

A) difficult; difficult
B) difficult; easy
C) easy; difficult
D) easy; easy

Question 38

The most severe economic contraction of the twentieth century was ________.

A) the recession of 2007-2009
B) the Great Depression
C) World War I
D) World War II

Question 39

Peak unemployment during the Great Depression was about ________.

A) 10 percent
B) 15 percent
C) 20 percent
D) 25 percent

Question 40

The length of expansions is ________ the length of recessions is ________.

A) fixed; fixed
B) fixed; variable
C) variable; fixed
D) variable; variable

Question 41

What happened to stock prices during the Great Depression?

A) They continued to rise as always.
B) They fell at the beginning of the Great Depression but recovered to their initial levels by the end of the Great Depression.
C) They fell at the beginning of the Great Depression and then remained constant until the end of the Great Depression.
D) They fell throughout the Great Depression.

Question 42

The demand for household appliances increased due to an increase in consumers' incomes.This will lead to a ________,assuming all else equal.

A) leftward shift of the labor demand curve of this industry
B) rightward shift of the labor demand curve of this industry
C) leftward shift of the labor supply curve of this industry
D) rightward shift of the labor supply curve of this industry

Question 43

A country's marginal product of labor falls during winter due to excessive cold.Which of the following is likely to happen in this case,assuming all else equal?

A) The country's labor demand curve will shift to the right in winter.
B) The country's labor demand curve will shift to the left in winter.
C) There will be an upward movement along the labor demand curve.
D) There will be a downward movement along the labor demand curve.

Question 44

The price of electricity consumption increased in a country.Since electricity is used for the production of various goods and services,this will lead to a(n)________,assuming all else equal.

A) downward movement along the labor demand curves of firms
B) upward movement along the labor demand curves of firms
C) leftward shift of the labor demand curves of firms
D) rightward shift of the labor demand curves of firms

Question 45

Which feature of economic fluctuations was not present during the Great Depression?

A) Co-movement of economic aggregates like real GDP and real investment
B) Limited predictability of turning points
C) Persistence in the rate of economic growth
D) All of the above were present during the Great Depression

Question 46

Which of the following describes how much policymakers and economists anticipated the Great Depression?

A) Both policymakers and economists knew the Great Depression was coming.
B) Policymakers, but not economists, knew the Great Depression was coming.
C) Economists, but not policymakers, knew the Great Depression was coming.
D) Neither policymakers nor economists knew the Great Depression was coming.

Question 47

How is a firm's labor demand curve affected when the price of its product rises?

Question 48

Why are firms usually unwilling to lower nominal wages?

Question 49

Assuming all else equal,if the marginal product of labor rises,________.

A) the labor demand curve shifts to the right
B) the labor demand curve shifts to the left
C) there is a upward movement along the labor demand curve
D) there is a downward movement along the labor demand curve

Question 50

Irving Fisher,the preeminent economic forecaster of the late 1920s,stated just before the start of the Great Depression that stock prices ________.

A) "were due for a substantial correction"
B) "had reached a permanently high plateau"
C) "would never again fall below current levels
D) "were substantially lower than they should be"

Question 51

Assuming all else equal,when the labor demand curve shifts to the left,________.

A) equilibrium wage rises
B) unemployment falls
C) output falls
D) inflation rises

Question 52

Suppose that in 2025,the U.S.economy experiences a prolonged downturn,with unemployment rates peaking at 25 percent.What term would best describe this event?

A) A recession
B) A depression
C) An expansion
D) A progression

Question 53

A country's labor demand curve shifted to the right after the adoption of a new technology.This implies that the use of the new technology ________,assuming all else equal.

A) increased the marginal product of labor
B) reduced the marginal product of labor
C) increased the minimum wage that firms need to pay
D) lowered the minimum wage that firms need to pay

Question 54

Assuming all else equal,if the price of fuel and energy increases,________.

A) a firm's labor demand curve shifts to the left
B) a firm's labor demand curve shifts to the right
C) a firm moves to a lower point along its labor demand curve
D) a firm moves to a higher point along its labor demand curve

Question 55

The demand for automobiles fell when gasoline prices increased.Which of the following is likely to happen in this case,assuming all else equal?

A) The labor demand curve of automobile companies will shift to the right.
B) The labor demand curve of automobile companies will shift to the left.
C) The supply of labor to the automobile industry will increase.
D) The supply of labor to the automobile industry will decrease.

Question 56

Assuming all else equal,if the demand for a firm's product falls,________.

A) the firm's labor demand curve shifts to the right
B) the firm's labor demand curve shifts to the left
C) the firm moves to a lower point along its labor demand curve
D) the firm moves to a higher point along its labor demand curve

Question 57

Assuming all else equal,if the labor demand curve shifts to the left and the labor supply curve remains unchanged,________.

A) the equilibrium wage rises
B) the equilibrium wage falls
C) unemployment rises
D) the marginal product of labor rises

Question 58

Assuming all else equal,if the price of each unit of capital rises,________.

A) a firm's labor demand curve will shift to the left
B) a firm's labor demand curve will shift to the right
C) a firm will move to a lower point along its labor demand curve
D) a firm will move to a higher point along its labor demand curve

Question 59

Which of the following is likely to happen if the level of technology used in an economy improves,assuming all else equal?

A) The economy's labor demand curve will shift to the right.
B) The economy's labor demand curve will shift to the left.
C) There will be an upward movement along the labor demand curve.
D) There will be a downward movement along the labor demand curve.

Question 60

Several firms in an industry laid off their workers.Assuming all else equal,this will lead to a ________.

A) higher rate of capacity utilization in the industry
B) higher real wage in the industry
C) higher rate of output in the industry
D) lower rate of capacity utilization in the industry

Question 61

According to Okun's Law,the year-to-year change in the rate of unemployment is ________ if the annual growth rate of real GDP is 4 percent.

A) −2 percent
B) −1 percent
C) 1 percent
D) 2 percent

Question 62

Which of the following happens during a recession?

A) The equilibrium wage rate falls.
B) The equilibrium wage rate rises.
C) Labor demand increases.
D) Labor supply falls.

Question 63

According to Okun's Law,if the annual growth rate of real GDP is 2.5 percent,the unemployment rate is likely to ________.

A) increase by 0.25 percent
B) decrease by 0.25 percent
C) increase by 0.5 percent
D) decrease by 0.5 percent

Question 64

Suppose we are plotting the relationship between the unemployment rate and the growth rate of real GDP.If the unemployment rate is measured along the vertical axis and the growth rate of real GDP is measured along the horizontal axis,we will get a(n)________.

A) horizontal line
B) vertical line
C) upward-sloping curve
D) downward-sloping curve

Question 65

The ________ theory emphasizes that changing productivity and technology are the main reasons behind fluctuations in an economy.

A) real business cycle
B) Keynesian
C) Ricardian
D) monetary

Question 66

Which of the following statements is likely to be true according to Okun's Law?

A) The unemployment rate remains constant when the growth rate of real GDP is 0 percent.
B) The unemployment rate remains constant when the growth rate of real GDP is 2 percent.
C) The unemployment rate declines when the growth rate of real GDP is below 2 percent.
D) The unemployment rate is zero when the growth rate of real GDP is exactly 1 percent.

Question 67

Employers often end up laying off more workers during a recession because of ________.

A) flexible wages
B) downward rigidity of wages
C) higher corporate taxes
D) a tight monetary policy

Question 68

An economy's ________ during a recession.

A) labor demand curve shifts to the left
B) labor demand curve shifts to the right
C) labor supply curve shifts to the left
D) labor supply curve remains unaffected

Question 69

The figure below shows the relationship between an economy's output and employment.

Refer to the figure above.Suppose the economy is currently operating on the production function F₂ and E₂ is the level of employment in the country.If the demand curve for labor shifts to the left,________.

A) employment will decrease from E₂ to E₁
B) employment will increase from E₂ to E₃
C) employment will remain unchanged at E₁
D) output will increase from Y₂ to Y₃

Question 70

Which of the following statements is true according to Okun's Law?

A) The unemployment rate tends to decrease when the growth rate of real GDP is high.
B) The unemployment rate tends to increase when the rate of inflation is high.
C) The unemployment rate tends to increase when the growth rate of real GDP is high.
D) The unemployment rate is unaffected by changes in the growth rate of real GDP if there is stagflation.

Question 71

The figure below shows the relationship between an economy's output and employment.

Refer to the figure above.If the economy is currently on F₂ and produces Y₃ level of output,a leftward shift of the labor demand curve with no change in productivity will cause output to ________.

A) decline from Y₃ to Y₁
B) decline from Y₃ to Y₂
C) increase from Y₃ to Y₅
D) increase from Y₃ to Y₄

Question 72

The ________ in employment during a recession is smaller if wages are ________.

A) decline; rigid
B) increase; rigid
C) decline; flexible
D) increase; flexible

Question 73

The ________ in a country's GDP during a recession is smaller if wages are ________.

A) fall; rigid
B) fall; flexible
C) increase; rigid
D) increase; flexible

Question 74

________ is one source of involuntary unemployment during recessions.

A) A lower corporate tax rate
B) A higher income tax rate
C) Flexibility of wages
D) Downward rigidity of wages

Question 75

The figure below shows the labor demand and labor supply curves for an economy.

Refer to the figure above.The economy is currently at E.Which of the following is likely to happen if a recession hits the economy,assuming that there is downward rigidity of wages?

A) The labor market equilibrium will move from point E to point G.
B) The labor market equilibrium will move from point E to point H.
C) The labor market equilibrium will move from point E to point D.
D) The labor market equilibrium will move from point E to point F.

Question 76

The figure below shows the labor demand and labor supply curves for an economy.

Refer to the figure above.The labor market is currently at point E.Which of the following is likely to happen if a recession hits the economy,assuming that wages are flexible?

A) The labor market equilibrium will move from point E to point G.
B) The labor market equilibrium will move from point E to point H.
C) The labor market equilibrium will move from point E to point D.
D) The labor market equilibrium will move from point E to point F.

Question 77

Explain the term "labor hoarding."

Question 78

How is a firm's labor demand affected during a recession if wages are downwardly rigid?

Question 79

Which of the following happens when an economy's labor demand curve shifts to the left without any change in its labor supply curve,assuming all else equal?

A) The equilibrium wage rate rises.
B) The unemployment rate rises.
C) The output of the economy rises.
D) The aggregate price level falls.

Question 80

According to ________,there is a close connection between unemployment and the growth rate of real GDP.

A) Engel's Law
B) Say's Law
C) Okun's Law
D) Ricardo's Law